Japan's parliament approved on Monday a 2 trillion yen ($25 billion) extra budget for disaster relief after the March earthquake, paving the way for bigger reconstruction spending likely to involve new borrowing and tax hikes. Prime Minister Naoto Kan, under fire for his handling of the nuclear crisis triggered by the massive March 11 earthquake and tsunami, has cited the passage of the extra budget and two other key bills as conditions for keeping a promise to resign.
Kan has kept the timing of his departure vague, frustrating his critics in the opposition and his own party. Political wrangling over the fate of the unpopular premier is threatening to further delay compilation of a future reconstruction budget expected to exceed 10 trillion yen.
Investors are counting on huge reconstruction spending to help the world's third-largest economy pull out of a post-disaster slump and resume moderate growth later this year and early in 2012. Tokyo plans additional spending of 13 trillion yen to help pay for Japan's biggest rebuilding project since the period just after the World War Two. It has already set aside 6 trillion in the extra budget just passed in parliament and one approved in May.
To raise the money, the government is considering issuing reconstruction bonds, with maturity of around five years, while scaling back other spending plans, the source told Reuters. Optimists in Kan's ruling Democratic Party of Japan, who want the unpopular leader to go, are hoping the two remaining bills will be passed by mid-August. That would clear the way for Kan to resign and for a party leadership race to replace him as the country's sixth prime minister since 2006.
But it remained unclear if combative opposition would cooperate in passing those other bills - one on deficit-bond issuance needed to fund a $1 trillion budget for the fiscal year to March 2012, and the other on renewable energy. An opposition lawmaker told Reuters it would not make a political issue out of the renewable energy bill -- which could be enacted next week - but opposition parties were driving a hard bargain on the deficit-bond bill.