The Japanese finance minister Masajuro Shiokawa has announced new plans to staunch the drain on the country's finances from loss-making state-backed companies.

The economy drive is aimed at cutting wasteful spending and balancing the budget.

Japan's government has been feeding substantial sums of money into state corporations for years, in order to prop up the firms.

As part of the ongoing reforms, one of the biggest money guzzlers - Japan National Oil Corporation - is already due to be scrapped.

Desperate for reform

Prime Minister Junichiro Koizumi wants to cut the money injected into general purpose funds by one trillion yen ($8.3bn; �5.7bn).

"There will basically be no such funds, except for special cases," the Prime Minister told a news conference.

State corporations have, along with banks, been a target of Mr Koizumi's structural reforms.

Cutting the wasteful spending has been a priority for the current government, but so far ministers have tended to protect the companies for which their ministries are responsible.

The need for reform has become even more crucial after the additional strain on the economy created by the 11 September terrorist attacks on the US.

Stumbling block

In addition to the announcement about the curtailed funding, Japan's top financial regulator vowed to significantly reduce banks' bad loans within about three years.

"We want to normalise the bad-loan problem by the end of a three-year period," said Financial Services Minister Hakuo Yanagisawa.

The core bad loans of Japan's banks are estimated at about 18 trillion yen and are seen as a key stumbling block to the recovery of the stunted economy.

Japan's economy is heading back into a recession - technically defined by two consecutive quarters of negative growth - after more than ten years of stunted growth.

The economy shrunk by 0.8% in the second quarter of the year and is likely to shrink again in the third quarter.