Tokyo - Bank of Japan Governor Masaaki Shirakawa expressed concerns on Friday that "the nation's economic conditions have been deteriorating" and its financial conditions are getting "rapidly severe" in a quarterly report.

Companies have reduced production, reported lower earnings and cut capital investments as exports slowed down and yen gained strength against major foreign currencies, the bank's report said after Shirakawa met with nation's regional branch managers.

Consumption has "weakened as the employment and income situation became increasingly severe," it also said.

Shirakawa said Japanese companies have faced difficulty raising operating capital in the commercial paper and other debt markets ahead of the end of fiscal 2008 in March, when demand for cash is expected to become stronger.

"As a whole, (Japan's financial environment) is rapidly getting severe," Shirakawa said.

The central bank plans "to make every possible contribution" in order to stabilize Japan's financial system.

The bank was expected to buy about 2 trillion yen (22.16 billion dollars) worth of commercial paper from banks and corporations to encourage more lending.

The bank's board members were expected decide on details of the purchase plan at a policy meeting next week.

Commercial paper is money-market security issued by banks and companies. (dpa)