UFJ, the smallest of the so-called "megabanks", is due to report results for 2003 in a week's time, as economic growth soars and bankruptcies shrink.

Japanese media and news agencies say the bank may announce a 300bn yen ($2.7bn; £1.5bn) net loss, as the cost of cleaning up bad debts mounts.

The bank said it had yet to finalise its figures, and refused to comment.

Back to boom

In late April, UFJ said it was raising its estimate of its spending on dealing with massive problem loans for the year to March 2004 by 63% to 813bn yen.

At the time, it said consolidated group profits would still reach 78bn yen.

Like its peers, the bank has been saddled with massive debts built up during the 1980s boom and secured against property and shares which have since plunged in value.

The aftermath has been one factor in Japan's long stagnation.

Now, though, the wider economic picture seems to be improving.

The economy grew at an annual rate of 5.6% in the first three months of 2004, comfortably ahead of expectations, according to figures released on Tuesday.

And corporate failures marked a 16th straight month of decline, down 21.5% year on year as conditions improved for firms both large and small.