World Crisis Online

Japan’s economy will overcome some temporary setbacks and may recover once reconstruction from last month’s earthquake and tsunami damage begins, Finance Minister Yoshihiko Noda said.

“Japan’s economy will likely slump in the near-term, but it may start to recover once reconstruction activities start kicking in,” Noda said in Washington overnight, after a meeting of finance ministers and central bankers from Group of 20 nations. “We need to keep in mind three uncertainties — the nuclear problems, power supply shortages and global supply chain disruptions.”

The March 11 magnitude-9 earthquake and tsunami left more than 28,000 dead or missing, knocked out plants, and triggered a nuclear crisis. The government last month estimated damages from the disaster may swell to as much as 25 trillion yen ($300 billion).

While the recovery is “broadening and becoming more self- sustained,” unrest in the Middle East and North Africa, as well as Japan’s earthquake, raise “uncertainty” in the outlook, G- 20 finance ministers and central bankers said in a statement. The G-20 will provide “any needed cooperation” with Japan, it said.

Priority on Relief Noda said the priority for the government is to undertake relief measures, such as building temporary homes for evacuees displaced by the disaster and clearing debris, and to submit an extra budget to parliament in April to finance that work. Following that, the government should immediately start compiling a second extra budget for reconstruction that could require more financing, he said.

“It’s necessary to address whether we are going to seek a path to restore fiscal health in the medium-term at the same time,” Noda said, indicating the government may flesh out a consolidation plan around the middle of the year when it reviews its fiscal goals.

Japanese Prime Minister Naoto Kan plans to unveil this month what he says may be the first of multiple supplementary budgets. Chief Cabinet Secretary Yukio Edano told reporters on April 7 that the first budget may be 4 trillion yen.

Chernobyl Level The quake and ensuing tsunami crippled the Fukushima Dai- Ichi nuclear plant operated by Tokyo Electric Power Co., causing radiation leaks and power shortages in eastern Japan. Government officials this week raised the severity level of the accident to the same level as the 1986 Chernobyl disaster.

Bank of Japan Governor Masaaki Shirakawa, who held a joint press conference with Noda in Washington, said he told the G-20 members that Japan’s financial system and the financial markets remain “resilient” after the disaster.

“We will continue strong support of the economy and financial markets,” Shirakawa said.

After the disaster in northeastern Japan, the central bank doubled to 10 trillion yen a fund to provide cash to markets by buying assets such as corporate debt and exchange-traded funds. It also unveiled a 1 trillion yen, one-year loan program for banks, aimed at getting funds to companies hit by the quake and tsunami.