Asia-Pacific

Japan quake reconstruction may cost up to $184b

(Agencies)
Updated: 2011-05-22 11:12

A landfill site of earthquake and tsunami debris is seen behind damaged cars at an area devastated by the March 11 disaster in Natori, north of Japan, May 21, 2011. [Photo/Agencies]

TOKYO - Japanese Economics Minister Kaoru Yosano said on Sunday the government may need to spend 10 trillion yen to 15 trillion yen ($184 billion) for reconstruction from the devastating earthquake that hit the country's northeast in March.

The government may need to issue bonds to meet the costs but should not do so without coming up with ways to pay for redemption, Yosano said, signalling that some form of tax hike would be inevitable.

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"I understand those who say we need to issue bonds for quake (reconstruction). But we shouldn't borrow recklessly without thinking about how to pay the money back," Yosano told a television programme.

"If we were to issue bonds for reconstruction, we need to decide in how many years we would pay the money back and how. That's important in maintaining market trust in Japan's fiscal state," he said.

Japan is reeling from the triple disaster of an earthquake, tsunami and prolonged nuclear crisis, with the government struggling to find ways to pay for the biggest reconstruction effort since the aftermath of World War II.

Damage from the quake pushed Japan into recession with the economy shrinking much more than expected in the first quarter and set to contract again in April-June as power shortages and supply chain disruptions hit factory output.

The government earlier this month passed through parliament a 4-trillion-yen first extra budget to meet immediate disaster relief costs.

It plans to compile a sizable second extra budget for reconstruction, although lawmakers are divided on how to pay for the spending.

Japan's public debt, at double the size of its $5 trillion economy, is the biggest among major industrialised economies, limiting room for additional fiscal stimulus.

But lawmakers are hesitant of raising tax, particularly the politically sensitive sales tax, for fear of scaring voters away, even as the cost of quake reconstruction adds to the huge social welfare spending for a rapidly ageing society.

Yosano, regarded as a fiscal hawk, has said that raising tax is crucial for Japan to meet ballooning social welfare costs and fix the country's tattered finances.