Bank of Japan Governor Mr Masaru Hayami has warned of "strong" downward pressure on the country's struggling economy, as data showing import falls depressed stocks and the currency.

"Amid the prolonged economic stagnation, there is strong downward pressure on overall economic activities," Mr Hayami told a quarterly meeting of the central bank's branch managers.

It was Mr Hayami's first meeting with branch managers since he took office in March. Tokyo's markets were in grim mood yesterday, after the finance ministry said Japan's March trade surplus climbed 56.5 percent from a year earlier, with imports showing a double-digit fall for the second straight month.

The March trade surplus was 1,252.6 billion yen ($9.6 billion ).

The Nikkei stock average of 225 leading issues fell 6.70 points to end at 15,697.10.

The yen slipped to a low of 132.50 against the dollar before a slight recovery, down from 131.70 yen in New York late Friday.

Mr Hayami said the climate surrounding the labour market and wage conditions was "becoming severer, on the back of falls in production, which reflect the weakness of domestic demand."

Although the government's stimulus package, now being finalised, is expected "to have a positive impact on (the economy moving) towards recovery, the Bank of Japan will continue to monitor economic developments carefully," he said.

Prime Minister Ryutaro Hashimoto plans to draw up details of the new 16 trillion yen ($123 billion) economic package later this week in time for next month's summit of Group of Eight leading countries in Birmingham.

Mr Hayami said strong concerns about the financial system stabilised recently, though he warned dark clouds still hung over banks.

"But the bad debt problems of the banking sector, which constitute a source of concern for the financial system, remain in severe condition," he said.

The government's efforts to stabilise the financial system would be significant in resolving bad debt problems, he added.

Hayami urged Japanese financial institutions to speed up bad debt write-offs to survive intense competition with foreign rivals following the start of Japan's "Big Bang" financial reform on April 1st.

"Financial institutions need to enhance their operating structure and to make efforts towards reviving the confidence of the markets and of depositors," Hayami said.