A formal announcement on the loans is expected to be made during Prime Minister Junichiro Koizumi's visit to Pakistan early next month, Japanese foreign ministry spokesman Hatsuhisa Takashima said.

Foreign Minister Nobutaka Machimura told his Pakistani counterpart Khurshid Kasuri of the loan decision when they met at a regional conference in Islamabad.

"Japanese Foreign Minister conveyed the message that Japan is intending to reopen the Japanese yen loan, which was suspended due to the nuclear issue," the spokesman said.

Japan stopped giving Pakistan the annual 500 million dollar development aid after it conducted nuclear tests in May 1998 in response to similar detonations by its rival neighbour India. It had been Pakistan's biggest aid donor.

"The resumption of the yen loan will activate more private sector involvement" in the two countries, he said.

However Machimura also urged Pakistan to provide more information about Khan, who in February 2004 confessed to passing atomic technology to North Korea, Libya and Iran.

Islamabad insists the government was not involved in Khan's activity.

"We have asked Pakistan to provide us any information on A.Q. Khan and his organisation's activity which has any connection with North Korea," the Japanese spokesman said.

Military leader President Pervez Musharraf pardoned Khan, who is revered as the hero of Pakistan's nuclear bomb and is currently under virtual house arrest in Islamabad.

However Musharraf has refused to let foreign countries or UN watchdog the International Atomic Energy Agency question him.

Japan is one of six countries engaged in drawn-out talks aimed at getting neighbouring North Korea to give up its nuclear ambitions.

The two foreign ministers also discussed regional and international issues including steps to promote economic cooperation between the two countries, Takashima said.

The Japanese foreign minister lauded the "courage" displayed by India and Pakistan in launching peace moves and also hailed Thursday's start of the first inter-Kashmir bus service for nearly 60 years, he added.

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