Japan Plans $4.5B in Quake-Relief Spending

May 3, 2016

Japan is preparing an extra budget of more than $4.5 billion for reconstruction of areas hit by this month’s deadly earthquakes, sources said, but the central bank is unlikely to grant any relief to banks in the stricken region.

The government is preparing an extra budget of more than 500 billion yen for reconstruction and aims to put it into effect by June 1, when the current session of parliament ends, the sources told Reuters on Tuesday.

The quakes on the southern island of Kyushu killed about 50 people and damaged at least 5,000 homes.

Still, Finance Minister Taro Aso told parliament the economic damage has yet to reach the threshold for putting off a scheduled sales tax hike in April next year.

“I don’t think we’re at this stage yet,” Aso said on Tuesday, though he added that there is a chance the hit to the economy could end up being bigger than expected.

The extra spending will come on top of fiscal stimulus measures the government is now considering as the world’s third-largest economy skirts recession due to weak global demand, the hit to exports from a strong yen and sluggish consumption.

The Bank of Japan will likely debate whether the economy needs another blow of monetary stimulus when its board meets for a two-day rate review ending on Thursday.

BOJ Governor Haruhiko Kuroda, summoned to speak in parliament on Tuesday, made no direct remark on monetary policy.

But he said he does not see a need to grant any exemption from negative interest rates to financial institutions facing an inflow of donations and subsidy funds after the quakes.

“Negative interest rates apply to only a small portion of financial institutions’ excess reserves, so most of them receive a net interest rate payment from the central bank,” Kuroda said.

Under its negative interest rate policy decided in January, the BOJ charges a 0.1 percent interest to a portion of excess reserves financial institutions park with the central bank in the hope that they would boost lending instead of hoarding cash.

Some lawmakers have said the policy would penalize regional financial institutions that could see a sharp increase in excess reserves as quake-related donations and subsidies flows in.

Abe has said Japan will proceed with next year’s scheduled sales tax hike unless the country is hit by a severe natural disaster or a market shock of the scale of the collapse of Lehman Brothers in 2008. ($1 = 110.8300 yen)

(Reporting by Leika Kihara; Editing by Chang-Ran Kim and Kim Coghill)

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