WRAPUP 2-Japan quake’s economic impact worse than first feared

* Nuclear crisis also threatens power supply

* Supply chain disruptions could be prolonged

* BOJ members uncertain when rebuilding will help growth

* Japan to explain quake and nuclear response at G20 meeting

(Adds economist’s quote, details)

By Rie Ishiguro and Shinji Kitamura

TOKYO, April 12 (Reuters) – The economic damage from Japan’s
massive earthquake and tsunami last month is likely to be worse
than first thought as power shortages curtail factory output and
disrupt supply chains, the country’s economics minister warned
on Tuesday.

The more sober assessment came as Japan raised the severity
of its nuclear crisis at the Fukushima Daiichi nuclear plant to
a level 7 from 5, putting it on par with the Chernobyl nuclear
disaster in 1986.

The Bank of Japan governor said the economy was in a “severe
state”, while central bankers were uncertain when efforts to
rebuild the tsunami-ravaged northeast would boost growth,
according to minutes from a meeting held three days after a
record earthquake struck Japan on March 11.

The government and main opposition party have agreed to a
spending package to get some reconstruction work started, but
setting a large additional budget will be difficult due to
Japan’s heavy debt burden.

“After a natural disaster, people tend to refrain from
spending and you get a sense that factory output will shrink,”
Economics Minister Kaoru Yosano told reporters after a cabinet

“In some areas, the impact could be very big.”

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

Finance Minister Yoshihiko Noda said on Tuesday that he
would explain the Japanese government’s efforts on post-quake
reconstruction and the nuclear crisis at a Group of 20 meeting
in Washington on April 15. [ID:nL3E7FC020]

Measuring the impact on consumer sentiment, factory
production and the supply chain is proving more difficult, but
as the crisis drags on at the nuclear power plant, the damage to
the economy looks to be more severe.

“We were in recession already,” said Takuji Okubo, chief
economist for Japan at Societe Generale.

“This time it will take longer for industrial production to
rebound, because just-in-time delivery systems have become even
more complicated.”

Japan’s economy is likely to grow 1 percent this year, down
from 2 percent growth forecast before the earthquake, as private
consumption slows to a halt, Okubo said. The economy could then
accelerate to 3.9 percent growth next year, he said.

Shortages of key components, including semiconductors, point
to the possibility of deeper and longer-running output
disruptions from Japan that could also hobble factories
elsewhere in the world which rely on Japanese parts.

Major Japanese automakers are grappling with complications
caused by parts factories that have been shuttered or are
running with limited power. [ID:nN1192492]

Toyota Motor Corp on Monday warned that the
uncertain supply of parts from Japan could threaten its output
of vehicles through July.

“Our economy is in a severe state,” BOJ Governor Masaaki
Shirakawa told lawmakers on Tuesday.

Many BOJ members said power supply constraints are likely to
impact the economy on top of the damage from the quake, minutes
from a March 14 meeting showed. The BOJ loosened policy at that
meeting by doubling its asset-purchase programme to 10 trillion
yen ($118 billion).

At its latest policy meeting last week, the BOJ launched an
ultra-cheap loan scheme for banks in the area devastated by the
quake, and has signalled its readiness to ease monetary policy
further if damage from the quake threatens Japan’s return to a
moderate recovery. [ID:nL3E7F802D]

Japan is set to compile an extra budget worth about 4
trillion yen, focusing on removing debris, building temporary
housing and restoring infrastructure such as schools. Japan
plans to allocate 1 trillion yen to stem job losses and help the
unemployed, the Nikkei business daily reported on Tuesday.

This is likely to be the first of several spending packages,
but cabinet ministers, including the finance minister, have said
that Japan, which has a huge public debt already twice the size

of its $5 trillion economy, should avoid new bond issuance.

Lending at regional banks rose 1.1 percent year-on-year in
March, up from a 0.8 percent rise in February, which may reflect
an increase in demand for funding after the quake, a Bank of
Japan official told reporters.

Outstanding commercial paper held by banks rose 0.2 percent
in March, marking the first rise since September 2008, also
likely reflecting the impact of the quake, the official said.

(Writing by Stanley White; Editing by Kim Coghill)

WRAPUP 2-Japan quake’s economic impact worse than first feared