Bankruptcies last year rose 15.3 per cent to 18,988, the highest level since 1983 and third-highest since World War Two, the leading credit research company Tokyo Shoko Research said in its monthly report.

The number of bankruptcies dropped sharply in November and December due to the government's efforts to ensure fund liquidity in the cash-strapped corporate sector, it said, but few believe this heralds a widespread recovery.

Debt held by Japanese companies that went bust in 1998 fell 2.1 per cent to 13.75 trillion yen ($120 billion), the second-highest figure in the nation's post-war history.

This included Japan's biggest-ever court-led bankruptcy in December, when Japan Leasing, a unit of nationalised Long-Term Credit Bank of Japan, went bust with 2.18 trillion yen in debt.

Tokyo Shoko said thegovernment's new scheme to provide debt guarantees of up to 20 trillion yen to small firms -- major victims of the nation's liquidity crunch -- and its hefty public spending helped curb bankruptcies in the latter half of the year.

In December alone, bankruptcy debt took a 62.3 per cent dive from a year ago to 1.02 trillion yen, while the number of bankruptcies fell 30.8 per cent to 1,123 cases, the smallest for December since 1990, when Japan saw 714 bankruptcy cases.

But Tokyo Shoko warned that it was too early to be optimistic since the fall did not stem from an improvement in corporate financial health, and added that the future trend rests on whether and how long the government's policy efforts last.

``It's like a shower in the desert. When the money dries up, then things could worsen again,'' a senior researcher Rokuro Kuroda at Tokyo Shoko told Reuters. ``We are not out of the tunnel yet.''

Kuroda said that more than 10 trillion yen worth of credit appeared to have been extended under the newgovernment scheme. If it were not for the credit guarantees, he said the number of bankruptcies might have soared far above 19,000 in 1998.

Another credit research firm, Teikoku Databank Ltd, meanwhile warned that Japan may see a corrective rise in bankruptcy numbers towards the end of March, when Japanese companies close their financial books for the year.

``Corporate business surroundings have been deteriorating, with fears growing that the current worsening in corporate profits may not stop,'' Teikoku Databank said.

``The sudden fall in the bankruptcy rate (in November and December) is only a temporary phenomenon,'' it said.

Kuroda said a series of local elections in April may force politicians to craft more steps to prevent any big bankruptcies, but companies would still be pressed to reduce excess production capacity, workers and debts in an effort ahead of the planned introduction of more transparent corporate accounting standards.

``This year is really crucial for general contractors,distributors and manufacturers including automakers, as we will see a further widening in gaps between winners and losers. Firms in the latter group would be eventually weeded out,'' he said.

Kuroda sees the risk of bankruptcy numbers rising to record levels this year, although he call it ``a necessary process that would lay basis for an early recovery in the business sector.