Leaders agree on emergency budget

BUSINESS: JAPANESE LEADERS pushed last night for an emergency budget to help fund relief efforts as they braced for the economic…

BUSINESS:JAPANESE LEADERS pushed last night for an emergency budget to help fund relief efforts as they braced for the economic damage of a powerful earthquake and tsunami that killed hundreds and caused widespread destruction.

The Bank of Japan said it will cut short a two-day policy review scheduled for next week to one day and promised to do its utmost to ensure financial market stability.

Auto plants, electronics factories and refineries shut, roads buckled and power to millions of homes and businesses was knocked out. Several airports, including Tokyo’s Narita, were closed and rail services halted. All ports were shut.

Japan’s biggest quake on record occurred as the world’s third-largest economy had been showing signs of reviving from an economic contraction in the final quarter of last year. The disaster raised the prospect of major disruptions for many key businesses and a massive repair bill of billions of dollars.

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Fearful of the economic impact, leaders of the ruling and opposition parties agreed on the need to compile an extra budget after prime minister Naoto Kan asked them to “save the country”.

The government would have to sell more bonds, but this is an emergency, so this can’t be avoided, Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.

“Given where the Bank of Japan’s benchmark interest rate is now, they can’t really lower rates. The BoJ will focus on providing liquidity, possibly by expanding market operations.”

The 8.9 magnitude quake sent shares skidding in Japan and elsewhere, adding to a slide in global stocks to their lowest level in nearly six weeks.

Electronics giant Sony, one of the countrys biggest exporters, shut six factories. “There are car and semiconductor factories in northern Japan, so there will be some economic impact due to damage to factories,” said Mr Yamamoto.

A tsunami 10m high hit Sendai port in northern Miyagi prefecture, about 300km northeast of Tokyo, but there were no immediate reports of damage.

Miyagi and its surrounding areas include major manufacturing and industrial zones, with many chemical and electronics plants. But early reports from the area were sketchy and it was not clear if some plants were shut simply due to a lack of power or because of quake damage.

Miyagi, the area most affected by the quake, accounts for 1.7 per cent of Japan’s gross domestic product, Macquarie Research said.

“There are two basic economic-related concerns. The first is that the fragile economic cycle is not in a position to withstand significant disruption,” Macquarie said in a note. “The second is that the combination of a softer economy and the additional strain on public finances will put upward pressure on bond yields.”

Toyota said it had halted production at a parts factory and two assembly plants in the area, while Nissan, the country’s second-largest automaker, stopped operations at four factories.

Two people were reported killed by a collapsing ceiling at a Honda factory north of Tokyo, but no other details were immediately available. – (Reuters)