UPDATE 2-Japan plans Y3 trln extra budget, no debt issue – media

* $35 bln extra budget is first of several for

* No new debt issuance for 1st extra budget – media

* Govt will review other spending plans, tap reserves

(Adds details, background)

By Leika Kihara

TOKYO, April 6 (Reuters) – Japan will not issue new debt to
fund an initial extra budget of more than $35 billion for
disaster relief, the Asahi newspaper said, in a sign the
government is wary of alarming bond investors by adding too much
to Japan’s already huge debt pile.

But after the first extra budget, which will focus on
funding immediate cleanup and repair work from last month’s
devastating earthquake and tsunami, the government will likely
spend far more in subsequent emergency budgets and may need to
issue new bonds to cover the costs, analysts say.

The more than 3 trillion yen ($35 billion) in the
supplemental budget will pay for repairing roads, ports and
schools, as well as helping those in quake-hit regions in
Japan’s northeast find new jobs, the Asahi reported on

“To maintain (market) trust, the government will not use
bonds as a source of revenue and therefore will not issue
additional bonds,” the draft of the extra budget said, according
to the paper.

The government will instead cover the costs by reviewing
some of the spending pledges by the ruling Democratic Party,
such as payouts to households with children, and tapping about
2.5 trillion yen from reserves in special accounts, it said.

Japan is facing its worst crisis since World War Two after a
9.0 magnitude earthquake and a tsunami towering more than 10
metres battered its northeast coast, leaving nearly 28,000 dead
or missing and rocking the world’s third-largest economy.


The government estimates the material damage alone could top
$300 billion, making it by far the world’s costliest natural

But the cost will be much higher as power supply shortages,
triggered by a nuclear plant crisis, and supply chain
disruptions hit factory output and business sentiment.

The Bank of Japan will likely stand pat on monetary policy
at a meeting on Thursday but will revise down its economic
assessment and signal its readiness to ease further when
necessary to support the economy. [ID:nL3E7F53CH]

Prime Minister Naoto Kan has said he hoped to submit the
first extra budget to parliament for debate by the end of this
month, and has not ruled out tax hikes to pay the costs.

Japan does not face a Greek-style debt crisis because its
public debt is held almost entirely by domestic investors.

But markets are keeping a close eye on whether disaster
relief costs will force the government to issue new bonds. That
would add to Japan’s huge public debt which, at twice the size
of its $5 trillion economy, is the worst among major
industrialised nations.

Analysts say the government will probably need two more
extra budgets, with total spending on supplemental budgets
likely to reach a combined 10 trillion yen or more.

Deputy Finance Minister Mitsuru Sakurai also last week
signalled that Japan may eventually need to spend more than 10
trillion yen on emergency budgets, with a portion possibly
covered by new taxes.

Some analysts believe the total bill could escalate to 20
trillion yen, however, given the extent of the disaster, with
accurate estimates hard to come by as Japan is still struggling
with the nuclear safety crisis and a potential power supply
crunch while about 160,000 people remain homeless.

Bond strategists said they were closely watching the debate
about the size and financing of extra budgets, but so far the
figures suggested by officials and floated in the media were
broadly in line with market expectations and did not warrant any
sharp reaction.
($1 = 84.9 Japanese Yen)

(Additional reporting by Tetsushi Kajimoto; Editing by Yoko
Nishikawa, Edmund Klamann)

UPDATE 2-Japan plans Y3 trln extra budget, no debt issue – media