Official figures have confirmed that during the month of January, Japanese bank lending managed to record its biggest yearly fall in over four long years, as firms struggling with spare output capacity and a gloomy economic outlook did not encourage borrowing for capital investment.

Under increasing pressure from the Government, to step up efforts to try and curb deflation and offer more support to the economy, the Bank of Japan had decided in December to offer bank funds which are more short-term, but it seems that the cash is not spreading through the country's economy as demand for funds remains on the weaker side.

As compared to the previous year, in January of 2010, bank lending managed to decline 1.5%, as has been revealed by official data shared by the central bank. The fall has come after a 1.0% slip that was recorded for the previous month, and the December fall, in turn, was the biggest decline since September of 2005.

"The drop (in bank lending) is mostly a reaction to the sharp gain last year. But it also shows that fund demand is weak even though banks are easing their lending attitude. Big companies are now able to raise funds in capital markets too, relying less on bank loans", said Junko Nishioka, Chief Economist at RBS Securities.