U.S. investment companies are swarming into Japan even as financial woes roil the country's markets.

Emboldened by Japan's drive to transform Tokyo into an international financial market by 2001, mutual fund and brokerage firms are getting into position to sell investment products to retail investors there.

The latest to make their moves are Merrill Lynch & Co. and Massachusetts Financial Services.

Beginning July 1, Merrill Lynch plans to distribute 16 mutual funds in Japan, said Mark A. DeSario, a managing director in the firm's international group. The firm will use brokers hired from defunct Yamaichi Securities to sell its wares.

Among the offerings will be two Massachusetts Financial portfolios, marking the Boston-based company's first bid to sell its funds in Japan, said Arnold D. Scott, senior vice president of its asset management arm.

Observers said the move by U.S. firms into Japan, though under way for months, appears to be accelerating as the country's financial woes deepen. This week, the yen hit an eight-year low against the dollar and government data confirmed that Japan's economy is in recession.

Amid this grim news, U.S. firms see opportunity. "Everyone wants to leverage this great feeding frenzy in Japan," said Geoffrey H. Bobroff, a mutual fund analyst in East Greenwich, R.I.

Japanese bankers say they are getting ready for intensified competition. Around 55% of Japanese citizens' assets are in low-yielding deposit accounts, Toru Hashimoto, chairman of Fuji Bank Ltd., told reporters at the International Monetary Conference in Vienna this month. But starting in December, "we banks will be allowed to sell investment trusts"-the Japanese version of mutual funds-"through our branches. We may tie up with institutions that are particularly strong in asset management."

June alone has brought a raft of developments:

Travelers Group agreed June 1 to buy a 25% stake in Nikko Securities for $1.6 billion.

E-Trade Group, an Internet securities company in Palo Alto, Calif., announced plans last week to go live in Japan.

Fidelity Investments on Tuesday told Dow Jones and Reuters that it has added Asahi Bank Ltd. to the list of banks that are testing sales of its funds.

MFS, meanwhile, is not stopping at its agreement with Merrill Lynch. The mutual fund company also has a "handshake" deal with a top-tier Japanese bank and is talking to several regional banks, Mr. Scott said.

Though financial services firms of all stripes are eyeing openings in Japan, asset management firms appear to have a head start over banks and brokerages in penetrating a market where foreign competition was long discouraged.

Yoh Kurosawa, chairman of Industrial Bank of Japan, said at the International Monetary Conference that although overseas banks have little presence in Japan, six of the country's 10 largest asset management firms are foreign.

"Japanese investors are thirsty for American-style options, from mutual funds to annuities, to mortgage-backed securities," said Sung Won Sohn, chief economist of Norwest Corp., Minneapolis.

A number of factors make Japan attractive for U.S. mutual fund companies, said A. Michael Lipper, president of Lipper Analytical Services, Summit, N.J. "Deregulation, low interest rates, and local brokers having credibility issues have made this an opportune time in some people's minds to be there," he said.

However, companies looking to locate in Japan should be prepared to spend money, Mr. Lipper warned. "Japan is a very expensive place to operate out of."

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