Japan has come to the aid of small overseas Japanese firms by lining up a $3-billion loan fund from government-affiliated banks to help them raise money in US dollars.

The temporary scheme, running until the end of March 2010, was announced yesterday by Japanese finance minister Kaoru Yosano, who said that Japan Bank for International Cooperation (JBIC ) will lend up to $3 billion to overseas Japanese small and medium-sized firms operating in developing countries in Asia.

The scheme, which will start in June, is aimed at enabling Japan's small overseas firms remain competitive in the international market during the current global recession.

The ongoing global economic crisis has made Japanese banks tighten their lending policy, which has affected small firms running their day-to-day operations.

Bank of Japan governor Masaaki Shirakawa, said that the central bank would oversee and monitor the funding.

State-owned Japan Finance Corp's international wing JBIC has been helping small exporters dealing in developing nations secure dollar funding.

While presenting the supplementary budget last month, the Japanese government had provided extra money to fund a ¥56.8-trillion package aimed at supporting struggling businesses with credit guarantees, investment in green economy and tax cuts. (See: Japan unveils supplementary budget of ¥15.4 trillion)

Last month, the Japanese government helped companies raise yen in cash by offering to guarantee 30 trillion yen ($316.5 billion) in loans from government-affiliated banks.

Japan is facing its biggest economic crisis since World War II and its economy shrank at an annualised pace of 12.7 per cent in the fourth quarter of 2008, the worst also since the oil crisis of 1974. Its economy is estimated to have shrunk by 14 per cent in the January-March quarter.

As the world's second largest economy struggles to cope with the recession, the country registered a trade deficit of 725.3 billion yen ($7.3 billion) for the financial year ended 31 March 2009. (See: Japan registers its first trade deficit in 28 years)

Global recession is forcing consumers in the US, China and Europe to tighten their belts, which in turn is pushing Japan deeper into a recession.

Large Japanese companies, which have been profitable for years, riding on the global economic boom, have posted record losses for the year 2008.

Electronic giants like Toshiba posted $3.47 billion net loss, Hitachi nearly $8 billion, NEC, $3 billion, Panasonic, $4.68 billion and Sony, $1 billion among other major Japanese car and manufacturing companies, which gone in the red last year.

Japan, which is heavily dependent on export demand to drive its economy, saw its trade surplus fall 99 per cent to 10.96 billion yen in March on a year-on-year basis.

The Japanese economy contracted by as much as 12.1 per cent - its worst performance in nearly 35 years - in October-December 2008 amidst the slowdown, which sent sales of cars, televisions and other goods tumbling.