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Japan to Sell $10.4 Billion More Debt for Quake Rebuilding

Japanese Prime Minister Yoshihiko Noda
Yoshihiko Noda, Japan's prime minister, approved today a 12.1 trillion yen third supplementary budget to fund rebuilding after the March 11 earthquake. Photographer: Kenichiro Seki/Pool via Bloomberg

Japan will sell about 800 billion yen ($10.4 billion) of additional government debt to the market this fiscal year to fund earthquake reconstruction and help companies cope with a strong yen, the Ministry of Finance said.

The total for investors such as banks and life insurers will be a record 145.7 trillion yen, compared with an initial plan for the year started April 1 of 144.9 trillion yen.

The amount announced today was below predictions from analysts at UBS AG, Mizuho Securities Co. and Nomura Securities Co. as the government seeks to control the biggest debt burden in the industrialized world. Policy makers aim to drive an economic recovery after three-consecutive quarters of contraction and the March 11 quake and tsunami that left more than 19,000 people dead or missing.

“The issuance plan gave a positive surprise to the bond market,” said Katsutoshi Inadome, a fixed-income strategist in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co., one of the 25 primary dealers obliged to bid at government debt sales. “Though the additional issuance is small, that doesn’t mean Japan’s overall financial burden is small, which is the bigger issue.”

Prime Minister Yoshihiko Noda approved today a 12.1 trillion yen third supplementary budget to fund rebuilding. The package will include 2 trillion yen to help companies deal with the yen’s appreciation. The government has already unveiled two packages totaling 6 trillion yen for quake relief.

Funds From Reserves

The 2 trillion yen will be used to encourage investment in domestic plants and to hire workers as the rising yen pressures companies to move abroad, according to the Cabinet Office. A separate 2 trillion yen will be added to 8 trillion yen in foreign-exchange reserves being shifted to the state-run Japan Bank for International Cooperation to help exporters and spur acquisitions overseas, the Cabinet said in a statement today.

Japan’s government also said it will bolster funds that can be used to intervene in the currency market by 15 trillion yen, a plan announced by Finance Minister Jun Azumi last month.

The yen measures may raise Japan’s gross domestic product by 0.5 percentage point, and help create or maintain 300,000 jobs, the Cabinet said.

Posing a threat to Japan’s export-led economic recovery, the yen has strengthened more than 5 percent against the dollar this year and advanced to a post-World War II high of 75.95 versus the greenback on Aug. 19.

“I don’t think that the yen trading in the 70s reflects healthy profits in the export sector,” Azumi told reporters in Tokyo today.

Nuclear Disaster

The extra budget, which Noda will present to a diet session that started this week, earmarks 9.244 trillion yen for spending related to rebuilding including the yen measures, according to the government. It also plans 356 billion yen in spending to deal with the nuclear disaster in the northeast.

Starting from Nov. 29, the government will add 100 billion yen to each monthly auction of debt maturing in two and five years. It currently sells 2.6 trillion yen in two-year notes and 2.4 trillion yen in five-year notes every month.

Most of the 25 primary dealers, who are obliged to bid at government debt sales, expected about 2 trillion yen of extra issuance for the rest of fiscal 2011, a Ministry of Finance official told reporters on Oct. 13.

Before the announcement, UBS estimated 1.6 trillion yen of bonds would be sold to institutional investors, while Mizuho Securities forecast 2 trillion yen and Nomura predicted between 1.2 and 1.4 trillion yen.

Bond sales to individual investors will increase by 1 trillion yen to 3 trillion yen, the ministry said.

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