Masoko Hotta's tragic story began nearly three years ago when she borrowed $400 for household expenses from a loan shark in her home town in central Japan.

Unable to pay it back, she borrowed again and again, never daring to tell her husband, until by last November she was $6,400 in debt and the laon shark was demanding the deed to her house. In despair, Mrs. Hotta strangled her 2-year-old daughter and tried, unsuccessfully, to commit suicide.

Such family calamities are more and more common in Japan where a national scandal is building up over the country's voracious and largely unregulated loan sharks. Police report a growing number of suicides, marital break-ups and even family slaughters caused by rising consumer debt during the recession.

The loan shark cases are a relatively new phenomenon in Japan, an ugly and often bizarre outgrowth of the country's rise to prosperity in the past decade. Money-lending is an almost unregulated enterprise in which companies can legally charge up to 109.5 percent in annual interest. The actual average charged is about 73 percent, compared to rates in the United States which now range between 18 and 24 percent, depending on state law.

The crisis for the Japanese borrower usually comes when the loan sharks, many of whom have ganster connections, put on pressure for payments. Sometimes the collector merely stands in the borrower' house loudly demanding the money, hoping to shame the delinquent debtors before their neighbors.

Others take more drastic action. A 35-year-old restaurant manager in Osaka last year failed to pay back about $900. Two gangsters according to the national police agency, broke the shutters, doors, windows and furniture at his shop. In Chiba, a Tokyo suburb, five men threatened to break the legs and hands of a 48-year-old man who owned nearly 7,000.

One couple gassed themselves and their three children when they became unable to pay back home loans the husband had taken from several money lenders. A housewife borrowed more than $6,000 from eight loans shark to pay her children's hospital bills and ended up running away from the family home.

Some authorities blame the frantic borrowing on the capricious buying habits in Japan's new consumer-oriented society. The loan companies, as they do everywhere, play on the consumers' desires for new television sets, golf clubs and vacations.

A colorful and imaginative subway ad by the Promisu Company describes a low-salaried man's plight when he invites his girl friend to go a ski vacation.

"When I asked her to go skiing, her eyes shone with happiness," says the text of the ad."So did my eyes. Then she said she preferred to go to Hokkaido and suddenly a cold wind blew into my heart." The romance could be saved suggested the ad, by borrowing liberally from Promisu.

But there is also evidence that many Japanese get entangled with loan sharks for what is considered normal living expenses. Police say the most victimized are housewives and , according to one survey, nearly two-thirds of their loans are for the necessities of life, such as food, rent, clothing and medical bills.

The salary-earner - Japan's middle-and lower-echelon business empolye - has a different reason for borrowing. He is expected to entertain his office workers after hours in bars and food shops. Unlike higher ranking executives, he is not entitled to charge those costs to an expense account, so he borrows from the loan shark. According to one loan company official, it is not common for some of these people to be indebted to 15 or 20 different sharks.

Increasingly, police are finding gangsters involved in the lending business. About 10 percent of those firms accused of exceeding the 109.5 percent maximum legal rate are known to have criminal ties. The underworld also supplies many of the hard-boiled collectors, some of them beefy former wrestlers, who terrify the borrowers, police say.

Under present law, anyone can become a money lender simply by filing a notice with the national police agency. No questions are asked and no license is issued.

A reform movement has encouraged the Komeito, or Clean Government Party, to propose registration of lenders and police authority to reject applications of those with known criminal convictions. Yet the party's bill, which was introduced last year, would not maximum.

Until recently, the Japanese government lower the 109.5 percent interest rate tolerated the loan sharks with its customary laissez-faire attitude toward business and made sure that no foreign competition was allowed into the country.

Two years ago, however, the government decided that a dose of Western-style competition might be healthy and began permitting American consumer finance companies to operate here. Two have opened for business and four more have been certified. They charge only 48 percent interest, a real bargain in Japan but still far above U.S. rates.

Shigeru Kimura, general manager of the Japan-Hawaii Finance Co., subidiary of a Hawaiian loan company, said business has been brisk since his doors were opened in down-town Tokyo last month.

Many would-be customers already have 15 to 20 loans with Japanese firms and he routinely turns them down. "When they come to us they are beyond help," Kimura said.