Tokyo must fix its ailing banking system and put its sagging economy back on track, but it feels that helping cash-strapped Asian nations is equally important, for Japan and the rest of the world.

"Japan needs to support Southeast Asian nations if asked, even if such support is not consistent with the stance of the United States," said an official at the trade ministry.

As an emergency step, the Japanese government will use trade insurance to guarantee loans made by private Japanese financial institutions to Southeast Asian nations to help them obtain funds to establish infrastructure.

The idea was proposed by trade minister Kaoru Yosano when he met Malaysian prime minister Mahathir Mohamad in Kuala Lumpur on Tuesday, he said.

The first case is likely to be a loan to Malaysia, despite UScriticism of Malaysian steps to introduce capital controls.

Analysts said Tokyo is also mulling other ways to boost the regional debt market with Japanese government guarantees.

The idea was consistent with a business committee's proposal to Apec (Asia-Pacific Economic Cooperation forum) earlier this month, economists said.

The committee proposed establishing a mechanism to enhance the credit of government bonds, denominated in hard currencies, issued by battered economies to encourage renewed capital flows into them.

Among the alternatives discussed is consideration of some form of guarantees or issuance of a new type of convertible government bonds.

Since the outbreak of last year's currency crisis in Asia, Asian nations have suffered a rapid capital flight.

The strength of the US dollar against Asian currencies and their falling creditworthiness are also making it almost impossible for them to repay their inflated debts in dollar terms, leaving their economic woes unsolved, economistssaid.

Private capital flows into emerging nations made it easier for these nations to have access to global financial markets.

But it also made their economies vulnerable to sudden shifts in investor sentiment and currency attacks, choking off their economic activity and having contagious effects in other nations such as Russia and Latin America.

In September 1997, Japan floated the idea of an Asian Monetary Fund (AMF), a regional facility to address any future financial crisis, but quickly ran into opposition from the West.

A monetary source in Tokyo said the idea may still be alive after fund resources of the IMF were drained due to a series of bailouts for Asian nations and Russia.

Taiyo Suzuki, a senior economist at Japan Research Institute said: "There is a high possibility that an idea of a regionally based fund like the AMF will surface again".

"But if it is only for the purpose of supplementing the IMF role in terms of finance, it won't work," he added.

French president Jacques Chirac onThursday wrote a letter to fellow leaders of the Group of Seven (G7) countries and European Commission chairman Jacques Santer urging rapid reforms of the world financial system.

Yasuyoshi Masuda, head of finance and currency research at Fuji Research Institute Corp, said: "A sort of public framework is needed to encourage capital flows into cash-strapped nations and to redress capital over flooding into specific nations".

"It is necessary for (G7 nations) to take emergency steps designed to stop blood from running and pre-emptive steps to prevent a recurrence of crisis in the future," Masuda said.