Prime Minister Junichiro Koizumi has pledged to streamline the bloated public sector as part of a reform drive to lift Japan from a decade-long slump. But analysts warn the social cost could be high if jobs are cut to boost efficiency at loss-making public firms.

The government will offer its remaining 12.5 per cent stake, or 500,000 shares, in East Japan Railway -- the largest of six rail operators formed after the break up of Japan National Railways Corp in 1987 -- to investors after a price is fixed by Wednesday. The money generated will be used by Japan Railway Construction Corp -- a government-run company formed to dispose of assets owned by the disbanded state monopoly -- to pay employee compensation and other debts.

If the sale goes well, Tokyo will sell its entire 31.7 per cent stake in West Japan Railway, which operates around Osaka, said Shigenori Hiraoka, a deputy director at the transport ministry.

The government will keep stakes in the four remaining pieces of its railway jigsaw which still rely on state support and continue to operate in the red. '(But) eventually selling the remaining stock has been the government policy since privatization took effect,' he said.

More shares in former state-owned industry leaders such as NTT Corp and Japan Tobacco will go, analysts said.