Japan's biggest export market is the US

Amid spiralling jobless rates, a stock market in its worst trough for two decades, and renewed worries for the country's debt-ridden banks, government and Bank of Japan (BoJ) officials were meeting on Wednesday to discuss how to cope with the effects of war fears.

The BoJ injected an extra 1 trillion yen ($8.5bn; �5.3bn) into short term money markets on Wednesday for the second straight day.

"What we are worried about most is that speculation will cause a chaotic situation in the stock market," Chief Cabinet Secretary Yasuo Fukuda told reporters.

As he spoke, new figures indicated that Japan's current account surplus slumped more than a third in the 12 months to January, as oil prices soared and the US economy flagged.

The 37.6% fall in the surplus follows a 22.1% slide in the year to December, and further complicates the usual March task of trying to prop up the stock market and companies' balance sheets in time for the end of the financial year.

Shares rose 1.6% on Wednesday - breaking a six-day slide - but the Nikkei 225 is still below levels set before the boom of the 1980s.

Market boosting

For the past year Japan has showed worrying signs that it could slip back into the recession which has stubbornly persisted for much of the past decade.

Repeated changes of government have done little to produce radical policy which could tackle the hundreds of trillions of yen in loans which have gone bad that are crippling the financial system.

Public support for the Prime Minister, Junichiro Koizumi, is falling away in the face of inaction, and the government's unpopular support for a US-led war in Iraq is hurting its standing too, the newspapers report.

Further stock-boosting measures, including equity buying by the Bank of Japan, could be on the way within days, observers suggest.

Amid the equity freefall, ruling party MPs are also pushing for the suspension of rules that demand firms price assets at market value.

The banks and firms themselves are struggling at best when it comes to repairing the damage they have suffered.

Mizuho, the biggest and - some analysts say - most fragile of Japan's four megabanks, has been trying to boost its capital by 1 trillion yen by selling new shares to large corporations.