Thu Jul 14, 2011 3:32am EDT
Hirano: reconstruction bonds to be repaid by tax hikes
March disaster adds to fiscal strain for indebted Japan (Adds quotes, background)
(Reuters) – Japan’s new reconstruction minister Tatsuo Hirano said on Thursday that the Bank of Japan should not underwrite reconstruction bonds to fund the rebuilding of areas damaged by the earthquake and tsunami in March.
“Underwriting of government bonds is something the central bank should not do,” Hirano told reporters.
Some lawmakers have urged the BOJ to directly underwrite debt so the government can fund spending for reconstruction from the disaster without selling more bonds in the market.
But the central bank strongly opposes underwriting bonds, or printing money to finance government debt, warning that doing so would hurt market trust in Japan’s finances and could trigger a spike in long-term interest rates.
Hirano, who recently took over after his predecessor abruptly resigned over comments that offended victims of the March disaster, also said he believes reconstruction bonds will mainly be repaid via tax increases.
Japan, which is saddled with public debt twice the size of its $5 trillion economy, has estimated the direct material damage from the March 11 disaster will reach 16.9 trillion yen ($214 billion).
Ratings agency Standard & Poor’s in April lowered Japan’s sovereign rating outlook to negative from stable, factoring in the fiscal strain the natural disasters would impose on the government.
The reconstruction ministry was formed following the March natural disasters that left at least 21,000 dead and missing. ($1 = 79.015 Japanese Yen)