Only days after Japan's foremost economic reformer was given a free hand, the euphoria about the chances for real change is waning.

Heizo Takenaka, appointed financial services minister on Monday as well as keeping his job as economics minister, has kicked off a top-to-bottom review of banking policy.

But while investors are sick of the trillions in bad debts crippling the banking system and want reform, they are also scared that the pain caused by any cure could be unbearable.

The result: A mass selloff of banking stocks on Thursday, driving the benchmark Nikkei down below the key 9,000 level to yet another 19-year lows as fears of a 'hard landing' grew.

The Nikkei index of leading shares closed down 1.25% at 8,936.43, the lowest finish since August 1983.

Global selloff

Not all the declines could be put down to concern that the government will force banks to accept public funds in exchange for more honesty about their problem loans.

Heavy falls on Wall Street overnight had accompanied bad news from a string of companies, including chipmaker AMD which warned of rising inventories and falling sales - a worrying echo of the situation as the tech boom turned to bust two years ago.

The Dow Jones index had ended the session in New York down 2.3%, with the tech-heavy Nasdaq Composite down 2.1%.

But the main influence was undoubtedly the banking worries, exacerbated by news that former central banker and key reformer Takeshi Kimura is to join Mr Takenaka's new banking task force.

Of the four biggest banks in Japan, the largest - Mizuho - and the smallest, UFJ, were worst hit by the selloff.

Both fell the full extent of their daily limit, or about 15%.

The extent of concern about Mizuho and UFJ was demonstrated by the fate of shares in the other two big players in the banking sector.

Shares in Mitsubishi Tokyo Financial Group and Sumitomo Mitsui both fell by much smaller amounts.