Mitsubishi UFJ bank today unveiled plans to issue as much as Y1 trillion (£6.7 billion) in new shares — a move that may prompt many other large companies to follow suit and trigger a record dilution of the Tokyo market.

The scheme comes amid rising concern that Japan, both at a corporate and state level, is overstretching the market's tolerance.

Companies have tapped the market for more than Y400 billion this year and spreads on government bonds have risen as some have speculated that the Japanese Government itself may have borrowed itself into a crisis.

The bank’s capital raising plan, the biggest Japan has seen this decade, came despite its announcement of a 59 per cent rise in quarterly profits and amid rising concerns over the health of the major Japanese banks, and their ability to meet more stringent international regulations as they are introduced.

Unlike many of their counterparts around the world, Japanese banks are huge holders of domestic shares, meaning that their capital levels diminish whenever the Tokyo stocks take a hard tumble.

As investors weighed the new odds of further massive capital raising excercises by banks, conglomerates, construction and insurance companies, the Nikkei index tumbled to a six-week low. Shares in Mizuho — widely viewed as the next most likely bank to try the capital raising gambit — plunged 2.4 per cent.

This year has already seen an unprecedented rise in common stock and convertible bond issuance by Japanese companies, as they turn to the market to shore-up weak balance sheets.

Between them, Japan’s largest companies have raised about £28 billion since January which has diluted the entire market by about 2 per cent and left many investors wondering if the Japanese market will ever again deliver the sort of growth for which it was once famed.

Many believe that the huge capital raisings, which include lunges by Nomura and Hitachi, have actively prevented Tokyo shares joining the global rally that has pushed other Asian bourses into buoyant territory.

One senior fund manager described MUFJ’s latest move as “solid and completely unwelcome confirmation that Japan Inc does not care one jot about shareholders.”

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