A top decision-making panel on foreign aid strategy comprising Japanese Prime Minister Junichiro Koizumi, Foreign Minister Taro Aso and other Cabinet ministers decided to do so after comprehensively considering Japan's national interests, including the significance of Japan-China relations and its current state, Kyodo said.

    The yen loans, which is yet to be approved by the Cabinet, will in principle be focused on environmental issues, as well as water and energy, Chief Cabinet Secretary Shinzo Abe was quoted as telling a press conference.

    In March, a time in a year Japan usually approves the disbursements of yen loans to China for a fiscal year from April, the Japanese government decided to withhold the authorization for fiscal 2005 because of the sharp deterioration in bilateral ties, which was severely harmed by Koizumi's repeated visit to the notorious war-related Yasukuni Shrine.

    Local media said the fresh move follows signs of improvement in bilateral ties, and is apparently aimed at giving a boost to mend the strained relations.

    The loans to China, which started in fiscal 1979, consist of Japan's official development assistance and grants in aid and technical cooperation.

    After reaching the peak of 214.4 billion yen (about 1.95 billion dollars) in fiscal 2000, the loans declined year by year, and decreased to only 85.9 billion yen (781 million dollars) in fiscal 2004.

    Japan and China agreed last year to terminate the new yen loans by 2008. Enditem