Japan's government approved 4 trillion yen ($48.5 billion) in spending on Friday for its first emergency budget for disaster relief, six weeks after a devastating earthquake and tsunami, and kept its promise of issuing no new bonds to fund it.
The emergency budget, which will likely be followed by more spending packages later to fund reconstruction, includes about 1.6 trillion yen of infrastructure-related spending. It will be submitted to parliament next week and is expected to be enacted in May. Authorities are wary of adding to a massive public debt already twice the size of Japan's $5 trillion economy, but additional bond issuance is likely for subsequent extra budgets that will be needed for rebuilding after the disaster, which has left nearly 28,000 dead or missing and triggered a major nuclear crisis.
Tokyo estimates the material damage alone could top $300 billion in the world's costliest natural disaster. "With this budget, we are taking one step forward towards reconstruction after the Great Tohoku Earthquake and towards restarting the economy," Finance Minister Yoshihiko Noda told reporters after a cabinet meeting. "It is notable that we compiled about a 4 trillion yen budget without issuing new JGBs (Japanese government bonds). It was quite difficult to bring the amount to 4 trillion yen, but we have worked it out."
PUBLIC DEBT The cabinet plans to submit the legislation to parliament on April 28 and hopes that the budget will be enacted as soon as possible, Noda said. Markets are keeping a close eye on how much the government will borrow to fund reconstruction costs, although Japan does not at present face a Greece-style debt crisis since its public debt is held almost entirely by domestic investors.
The actual size of the extra budget is only 305.1 billion yen, with the bulk of the 4.0153 trillion yen in outlays to be financed through spending cuts in foreign aid, payouts to families with children and other existing programmes. The government is also tapping reserves for pension payouts - seen as a sacred cow in a fast-ageing society where each retiree will be supported by fewer than two workers by 2030, while the opposition opposes this approach. Japanese Prime Minister Naoto Kan said on Friday he planned to explain early next month how to revive the economy after last month's natural disaster.