JAPANESE police have rescued four hostages from a bank and arrested the knife-wielding man who had held them captive for more than 12 hours while demanding the prime minister resign, officials say.

In a televised news conference on Friday, a police spokesman said the hostage-taker, identified as Koji Nagakubo, was arrested on suspicion of taking a total of five people captive, including one person whom he had released earlier.

All the hostages were safe and in protective custody following the pre-dawn police raid, the spokesman said, though local media reported one of them - a 19-year-old female bank employee - was slightly injured.

The 32-year-old man began the siege on Thursday afternoon at the Zoshi branch of the Toyokawa Shinkin Bank in the otherwise quiet residential area of Toyokawa city, in central Aichi prefecture.

Wielding a survival knife, he took four employees and a female customer captive and demanded the cabinet of Prime Minister Yoshihiko Noda step down, local media said. Noda last week called an election for December 16, which he is expected to lose.

In initial questioning by police, the suspect admitted the allegations, but had yet to give details about his motive, public broadcaster NHK reported.

About 13 hours after the incident began, police wearing protective gear and carrying shields rushed the office before dawn, overpowered the man and escorted out the remaining four hostages.

"It was difficult to check inside, but we took action placing top priority on the safety of the hostages," an investigator told NHK. "We believe we took the best possible way."

Television footage showed a dozen police breaking the window on the second floor before moving to the ground floor, where the man pointed his knife at the hostages.

The man, who also held another knife, handcuffed at least one of the hostages, NHK said, adding that all police involved in the rescue operation were also unhurt.

"I was so relieved because no one was (seriously) injured," one neighbour told Tokyo Broadcasting System Television.

Television footage earlier showed a man who appeared to be a police officer carrying a megaphone and a plastic bag to a side door of the building guarded by police. The building's shutters were down but lights could be seen inside.

Shortly before the incident, a man police believe was the hostage-taker had attempted to break into another bank just 150 metres away from the site, NHK reported.