Senior financial officials from around the world pledged on Saturday to cooperate on currencies "where appropriate," but turned up the heat on Tokyo to boost its flagging economy and fix its financial system.

Highlighting the need for Japan to fix its banking woes, sources at the Long-Term Credit Bank of Japan Ltd said on the same day as the Group of Seven (G7) that the bank was considering a merger or restructuring -- both requiring some form of public funds -- to get out of its financial bind.

"It all depends on whether they come up with a scheme to consolidate and restructure the financial sector," Kathy Matsui, Chief strategist at Goldman Sachs (Japan). "If Japan wants the yen supported, it has to take swift steps to address the restructuring issue."

Should Tokyo falter in its effort toforge policies quickly, not only Japan but the rest of Asia could edge back toward the financial precipice from which last week's intervention rescued the region. "If they back down...it would be back to square one," Matsui said.

Worries about Japan's financial system and its beleaguered economy had toppled the yen to eight-year lows of below 146 to the dollar before a surprise joint rescue by Washington and Tokyo last week boosted the Japanese currency by some 10 yen.

The joint yen-buying operation -- the first in more than six years -- was prompted in part by fears that the yen's steep slide was robbing Asia of its chance to recover and might force China to devalue its own yuan currency, setting off a new round of tit-for-tat devaluations in the Asian region.

China -- which has emerged as a regional hero for its stand on the yuan and for pressing Washington and Tokyo to rescue the yen -- on Saturday urged the two economic giants to keep acting to support the Japanese currency and called on Tokyo toimplement planned policies promptly.

Market experts as well as the United States, Europe and Japan's Asian neighbours have all warned Tokyo that the effect of the joint intervention would fade quickly unless Japan came up with a concrete plan for fixing the bad loan problems.

Japanese authorities, meanwhile, are keen to avoid a rerun of the crisis last November, when the stunning collapse of the nation's fourth largest brokerage -- Yamaichi Securities -- raised financial system fears to fresh heights. "The whole aim is to prevent a repeat of Yamaichi and worries about the whole system again," Matsui said.

Yamaichi's untimely -- if long anticipated -- demise jolted the ruling Liberal Democratic Party (LDP) into unveiling last December a 30 trillion yen financial stabilisation package including 17 trillion yen to protect depositors and 13 trillion to recapitalise banks.

But Japan still has a lengthy list of issues to tackle, including getting banks to disclose the true extent of their problem assets andto speed up write-offs of bad loans.

The government must also clarify its still vague framework for using public funds both to handle failed institutions and to facilitate the merger of those too weak to survive but too important to go out of business all toget-her.

A government-ruling party panel working on the details of measures to encourage banks to liquidate bad loans faster and to stabilise the financial system is set to meet on Tuesday.

The party is also debating the creation of a "bridge bank" to provide funds, possibly from public coffers, to firms left in the lurch when financial institutions fail.

LDP policy chief Taku Yamasaki said on Saturday that the party would decide by July 8 on a plan to solve banks' bad loan problems, including what to do about a "bridge bank."

Authorities have little time in which to engage in lengthy debate of the politically touchy matter. "This issue is affecting the stock market and currencies, and the government and ruling party must decide what to do assoon as possible," said Masaru Takagi, chief economist at the private Fuji Research Institute. "They simply don't have much time."

Ruling politicians have promised not to be distracted by a key poll for parliament's Upper House on July 12, although analysts worry that fleshing out concrete plans for the "bridge bank" could be tough as the election campaign heats up.

"I don't think we will see the `bridge bank' until after the election," said Brian Waterhouse, financial analyst at HSBC Securities. "The problem is, I don't think the market can wait that long."