Japan is preparing to tap its foreign exchange reserves to the tune of $100 billion (£76.2 billion) in an offer to the International Monetary Fund (IMF), government sources have told The Times.

The Japanese offer, which will be unveiled tomorrow in Washington, will dramatically increase the IMF's ability to lend to emerging economies savaged by the global financial crisis.

Countries in Eastern Europe have already been forced to accept loans from the IMF, but economists are warning that the risk of meltdown could soon emerge in Asia. Japan is already the second-largest donor to the IMF, and has the world's second-largest stash of foreign reserves - some $980 billion.

According to media reports, Japan's prime minister, Taro Aso, will announce the offer at Friday's meeting of the Group of 20 industrialised and emerging nations.

One ruling party MP confirmed that Mr Aso was "preparing to demonstrate Japan's commitment to global financial stability through its foreign reserve strength," and that "the ability of the IMF to lend aggressively through this crisis must be a priority."

Although details of the plan have not been widely disclosed throughout the government, it is understood that the reserves - already mostly held in the form of US Treasuries - would be offered as collateral for the IMF as it attempted to raise funds as emergency needs arise.

Japan is proposing to lend about 10 per cent of its reserves to ensure that the IMF is itself able to meet its funding demands.

But the loan will need to be structured carefully, said Japanese government sources, so that the facility does not actually lead to a sell-off of US Treasuries in an already unstable market.

The Japanese government privately hopes that its actions will prompt other nations with hefty foreign reserves to make similar offers to the IMF, though it is likely to stop short of making an explicit demand that others follow suit.

China, with even larger reserves than Japan, is viewed as a likely candidate to provide collateral, as well as Middle Eastern oil-producers.

The IMF has about $200 billion in surplus funds but it is scrambling to bolster its finances because it is expected to make several large loans to countries such as Iceland, Serbia and Ukraine.

Japan's large foreign exchange reserves are the result of years of currency intervention by the government to keep the yen down against the dollar and help exporters stay competitive.

The reserves grew enormously in 2004 when Japan bought tens of billions of dollars in what eventually became a desperate effort to fight the prevailing market direction.

Although Japan's monetary authorities have not intervened since March 2004, recent comments from the Finance Ministry suggest that the Japan may be preparing to step into the markets again if the yen surges back towards Y90 against the dollar - a level that destroys the profits of the country's major exporters.

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