Kan Told to Decentralize Japan on Tokyo Annihilation Danger

Takayoshi Igarashi has spent much of his career railing against Japan’s public-works spending culture. Now, he’s advocating what could become the nation’s biggest investment in urban planning in decades.

Two days before Japan suffered its record earthquake and a devastating tsunami on March 11, Prime Minister Naoto Kan appointed Igarashi as a Cabinet adviser on coping with Japan’s population decline and rural-region decay. Igarashi says the disaster has made clear the nation must reduce the role of its capital city to avert an even greater catastrophe.

“I told the prime minister that nationwide dispersal is the first thing we need to do as we rebuild,” Igarashi, a professor at Hosei University in Tokyo, said in an interview after meeting with Kan last week. “We have no idea when the big one’s going to hit Tokyo, but when it does, it’s going to annihilate the entire country because everything is here.”

To start with, Igarashi is pressing for a reconstruction package of at least 20 trillion yen ($245 billion), a figure that matches calls from Diet members from both the ruling and largest opposition party. Such an effort would amount to almost half the 44.3 trillion yen cap on bond sales that Kan pledged for the fiscal year starting April 1, risking a surge in yields should the spending be financed through debt.

Funding Challenge

Chief Cabinet Secretary Yukio Edano told reporters in Tokyo yesterday it’s too early to consider how to fund the rebuilding plan. Economic and Fiscal Policy Minister Kaoru Yosano said three days ago that some combination of financing may be needed for the supplementary budget to be compiled next month.

Igarashi favors a tax increase rather than debt sales, proposing a 2 percentage point rise in the sales tax to 7 percent. About two-thirds of Japanese in a Kyodo News survey said they favor boosting taxes to fund the recovery, the news agency said yesterday. Kan’s approval rating rose 8.4 percentage points, to 28.3 percent, Kyodo said.

Some lawmakers have also endorsed a tax increase. Ikkou Nakatsuka, deputy chairman of the ruling party’s tax committee, said in an interview last week that “we can’t avoid raising taxes as the great earthquake may worsen an already dangerous fiscal situation.”

Bond investors have yet to signal concern at the reconstruction cost, with yields on benchmark 10-year notes closing at 1.245 percent today in Tokyo, down from 1.31 percent the day before the earthquake.

Factory Shutdowns

More than two weeks since the magnitude-9.0 temblor and ensuing tsunami hit, companies are still struggling to bring factories back online. Toyota Motor Corp. said it has lost output of 140,000 vehicles, and Honda Motor Co. has seen a production loss of 46,600 cars and trucks and 5,000 motorcycles.

Kan’s view is that while the immediate task of officials is to control the crisis at Tokyo Electric Power Co.’s Fukushima Dai-Ichi nuclear plant, he understands the need for economic dispersal, said Igarashi, who was at the Cabinet Office when the quake hit. Stranded with no train service, he slept in a chair before going home the next day.

“People are concerned about the risks that come with focusing everything in greater Tokyo,” Hideo Hayakawa, the Bank of Japan’s Osaka branch chief, said in an interview last week. “With this earthquake, it’s become clear that the Tokyo metropolitan area is the country’s most important region -- Kansai doesn’t have the economic capacity to compete with that.”

Tokyo’s Rise

Osaka, in the Kansai region west of Tokyo, once was Japan’s center of commerce as the industrial revolution helped it boom into a bustling textile hub. In the late 19th century, businesses began to expand to a less-crowded and cheaper Tokyo. The political capital soon flourished to eclipse Osaka’s industrial might as it built modern roads and capital became accessible from its banks.

An earthquake that killed more than 140,000 people in 1923 and the B-29 air raids that burned much of the city during World War II didn’t stop Tokyo’s rise in the following decades.

In 1955, greater Tokyo, a region that also encompasses three neighboring prefectures, generated 24 percent of the nation’s wealth. By 2007, the region’s gross domestic product made up one-third of Japan’s economy, was larger than India’s entire GDP and three times the size of Sweden’s.

Tokyo Escaped

Tokyo escaped the worst of the March 11 quake, which left 27,242 dead or missing as of yesterday afternoon, according to the National Policy Agency in Tokyo. The brunt of the blow came to the northeast, in the Tohoku region, home to some of the public-works projects that Igarashi criticized in the past as sapping Japan’s economic dynamism.

Kan’s Democratic Party of Japan, which defeated the Liberal Democratic Party that ruled the nation almost without break in the postwar era, had railed against the LDP’s support for the construction industry. “From concrete to people” was one of the DPJ’s campaign slogans.

One concern in the aftermath of the quake: possible consequences from the change in pressure levels on undersea plates extending 500 kilometers to the east and west of the epicenter.

“It is possible that the portion of the plate boundary closer to Tokyo is now closer to failure, though it is rather difficult to say when that failure might occur and how large it might be,” said Brian Baptie, a scientist at the Keyworth, U.K.-based British Geological Survey.

A large temblor striking the Kanto region would hit the world’s most populous urban region. The Tokyo-Yokohama area has 35 million people, according to Illinois-based market researcher Demographia. The tri-state area of New York, New Jersey and Connecticut ranked sixth in 2010.

“Look at the U.S. and how they have New York and L.A. and Chicago and Washington,” said Igarashi. “The lesson we need to take away from this disaster is that we have to restructure Japan as an entire nation.”

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net

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