The credit research firms which released the data also warned that bankruptcies could increase amid uncertainty over questionable business practices by some Japanese niche financing firms specialising in loans to small businesses.

Total debts of Japanese companies that went bankrupt in October fell 14.4 per cent from a year earlier to 632.6 billion yen ($6.03 billion), the lowest monthly figure this year, credit research firm Teikoku Databank said.

Bankruptcy debts over the first 10 months of the year, however, totalled 12.75 trillion yen, exceeding the amount for the same period last year.

Bankruptcy debt for all of last year hit a post-war record.

"It is now almost certain this year will mark the largest bankruptcy debt in the post-war period," the research firm said in a statement.

Corporate bankruptcies hover around 1,400 By number, corporate bankruptcies in October fell 18.3 per cent from a year earlier to 1,395, although the number was up 1.7 per cent from the previous month, Teikoku Databank said.

Another credit research firm, Tokyo Shoko Research, said the year-on-year drop could be attributed to such factors as the government's loan guarantee programme, which was implemented in October 1998, and public works spending. The government now plans to expand the total amount of loan guarantees by 10 trillion yen to 30 trillion yen, and to extend the programme by one year to March 2001.

"The number of bankruptcies has been steady around 1,400 cases in recent months and could expand going forward as the one-year grace period on repayment of guaranteed loans expires," Brian Rose, economist at Warburg Dillon in Tokyo.

"We look for bankruptcies to turn positive in year-on-year terms in November or December, although government action should prevent the explosion of bankruptcies that would occur if market forces were allowed to operate fully," he said in a report.

The two research firms added that controversial practices by some niche lenders could also push up the number of bankruptcy cases in the future. A former employee of Nichiei Co, Japan's biggest niche lender, was arrested in October on suspicion of pressuring a loan guarantor to sell his body organs to pay off a high-interest loan.

In the wake of the incident, the presidents of Nichiei and another nice lender Shohkoh Fund & Co were called last week to answer questions in parliament.

The research firms said a large number of financially pressed companies still turn to niche lenders for survival. If such lenders' activities were restricted it could lead to another surge in bankruptcies, they said.

--Reuters