Kohei Otsuka, senior vice minister for financial services, said Tuesday that the government will prepare a bill to urge financial institutions to ease loan conditions for small firms, but the law would not have compulsory power.
The move indicates that the government is unlikely to implement a large-scale debt moratorium program that Financial Services Minister Shizuka Kamei has advocated.
"Compulsory application (of the law) is difficult and not appropriate," Otsuka told a news conference.
He added the government will draw up the bill by the time the extraordinary Diet session starts next month.
Prime Minister Yukio Hatoyama said separately that such a system should not be "outrageously" powerful.