The Industrial Bank of Japan on Thursday said that it will raise its long-term prime rate, last increased in July, 0.7 percentage point to 2.9 percent on Friday.

Japan's two other long-term credit banks — state-owned Long-Term Credit Bank of Japan and Nippon Credit Bank, are expected to follow suit. The two institutions were recently nationalized to head off imminent collapse under the weight of heaping amounts of unrecoverable and nonperforming loans.

A financial institution charges the prime rate on loans of one year or longer to borrowers it deems to be the most creditworthy. A change in the prime, often used as a benchmark interest rate for many personal, housing and corporate loans, can have wide-ranging effects on the economy.

The IBJ's move may also prompt other institutions such as trust banks and life insurers to raise their lending rates — a reaction that could put downward pressure on consumption and investment and hurt the nation's prospects for recovery, industry sources say.

Kosaku Inaba, chairman of the Japan Chamber of Commerce and Industry, expressed apprehension Thursday over the planned hike, saying it will adversely affect businesses already suffering amid the economic slump.

While expressing his understanding of the necessity of raising the rate, he said such a move should be delayed as long as possible and the hike kept to a minimum.

IBJ said it was hiking the prime in response to the surging yield on its mainstay five-year, interest-bearing bank debentures, which have risen to nearly 2 percent from 1.3 percent in December.

Dai-ichi Mutual Life Insurance Co. and Nippon Life Insurance Co. said that their lending rates for 10-year loans would rise by 0.8 point to 3.5 percent and 3.3 percent, respectively.