— Japan Govt To Issue Reconstruction Bonds Worth Y11.6 Trln

TOKYO (MNI) – Japan’s government on Friday said it has drafted a
long-awaited third supplementary budget for fiscal 2011 totalling Y12.1
trillion, mainly to finance the reconstruction of the northeastern areas
wrecked by the March earthquake disaster.

The government will finance the bulk of the extra budget by issuing
reconstruction bonds worth Y11.6 trillion, and the bonds will be
redeemed by proposed corporate and income tax hikes.

The rest of the funding will come from using budget reserves,
raising non-tax revenues and trimming the original fiscal 2011 budget
expenditures.

The budget will be submitted to parliament on Oct. 28 for debate
and approval in coming weeks. The current 51-day extraordinary Diet
session will last through Dec. 9.

The new spending will be the second largest on record as a
supplementary budget, next to the first supplementary budget for fiscal
2009 totaling Y14.8 trillion which was compiled by a government under
the now-opposition Liberal Democratic Party.

Outlays for reconstruction of the quake-hit areas will total Y11.7
trillion, which will include Y2 trillion for easing the impact of the
strong yen.

Of the Y2 trillion, subsidies for Japanese companies that build
domestic plants will total Y500 billion amid fears that the lingering
yen strength will prompt more firms to relocate production bases
overseas.

The government will also boost its funds for foreign exchange
interventions by raising the cap on the issuance of short-term financing
bills to Y165 trillion from the current Y150 trillion.

Meanwhile, the reconstruction bonds will be redeemed in 10 to 15
years, depending on talks between the ruling coalition led by the
Democratic Party of Japan and the opposition camp, the latter of which
controls the upper house of parliament.

The government plans to issue one-year government bonds worth Y5
trillion, 2-year bonds worth Y4.65 trillion, 5-year bonds worth Y400
billion and bonds for individual investors worth Y1.5 trillion.

Bonds for individual investors are matured in three, five or 10
years.

In addition to the supplementary budget, the government will use a
large-scale pool of public funds managed by the Ministry of Finance
which uses vast national savings through Japan Post’s financial
services.

The fiscal investment and loan program (FILP) will be raised by
Y1.3 trillion to Y20.6 trillion for this fiscal year, aiming at
rebuilding the disaster zones and countering the strong yen.

The FILP will include funds worth Y10 billion to help
private-sector firms finance foreign acquisitions and investments in
natural resources.

In the process of M&As, the Japanese firms will sell yen for
foreign currencies, which should ease the upward pressure on the
Japanese currency.

tokyo@marketnews.com
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