March 19 (Bloomberg) -- Japan’s government may follow the U.S. lead in injecting capital into large companies to help avert bankruptcies as the country grapples with recession, the ruling party’s No. 2 official said.

“Should a big company go bankrupt, 10,000 people could lose their jobs,” Liberal Democratic Party Secretary-General Hiroyuki Hosoda said in an interview yesterday in Tokyo. “Preventing that is our top priority.”

Hosoda, 64, said the party will propose enacting the new rescue measures before the fiscal year ends this month to avoid a “March crisis” of massive corporate failures. Plans also include widening access to bank loans, he said. He declined to specify what form a capital injection would take.

Prime Minister Taro Aso is compiling a third stimulus package since taking office in September. The government and the Bank of Japan are also pumping cash into banks to help lift the world’s second-biggest economy out of a recession that threatens to become the deepest since World War II.

“Markets are still concerned some companies may fail to survive the end of the fiscal year,” said Naoki Iizu, a senior economist at Mizuho Securities Co. in Tokyo. “Some sort of rescue measure such as the injection of public funds may help eliminate the fear of large-scale bankruptcies.”

Billions of Dollars

The LDP proposal comes as the U.S. pours billions of dollars into bailing out struggling automobile makers General Motors Corp. and Chrysler LLC. It also took a majority stake in insurer American International Group Inc. U.S. auto suppliers are asking for as much as $18.5 billion in assistance.

Hosoda said alleviating the recessionary impact on small companies when larger firms are cutting production and firing workers is critical.

“Even the U.S. is planning to save the Big Three automakers, because the effect of their failure is too big,” Hosoda said. “It’s the same for Japan.”

The opposition Democratic Party of Japan, which has used its control of the upper house to delay legislation, is willing to support new measures to assist companies, Hosoda said. Removing bankruptcy concerns would help foster a stock-market recovery after the benchmark Nikkei 225 Stock Average tumbled 35 percent in the past year, he said.

‘Urgent Task’

“If large companies go bankrupt, the entire Japanese economy sinks,” DPJ lawmaker Tetsuro Fukuyama said in a March 3 interview. “Funding large companies is the most urgent task.”

Hosoda, who was chief cabinet secretary under former Prime Minister Junichiro Koizumi, said once the economy shows signs of stabilizing, Aso can consider calling an election, which he has to do by September.

“Elections will be held once we see a trend of economic recovery and people can say the government has done enough, Hosoda said. “Nobody dissolves parliament when there is only bad news.”

The LDP and its junior coalition partner New Komeito hold 334 of 480 seats in Japan’s more-powerful lower house. The coalition is targeting a majority to maintain the LDP’s half- century grip on power.

To contact the reporter on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net.

Last Updated: March 19, 2009 00:06 EDT