Japan warned markets on Tuesday it would act again to keep the yen in check and prevent its rapid gains from derailing Tokyo's effort to rebuild areas ravaged by this month's deadly earthquake and tsunami and revive the struggling economy.
In their first joint intervention since 2000, Group of Seven rich nations sold the yen on Friday after it spiked to record highs, threatening to deal another blow to the export-reliant economy that was just picking up from a lull when the disaster struck.
"We will cooperate as appropriate while closely watching market movements," Finance Minister Yoshihiko Noda told a news conference after a cabinet meeting.
The yen traded around 81 to the dollar, well off last week's record high of 76.25, and analysts said the 80-80.85 range could serve as a floor for the U.S. currency. Noda said he would not comment on any specific levels when asked about market's reaction to the intervention.
The yen's strength, driven by speculation that Japanese firms will bring back a big chunk of their overseas investments to fund Japan's biggest reconstruction push since the post-World War Two period, is just one of Tokyo's concerns.
The authorities are also racing to avert a disastrous meltdown at a quake-crippled nuclear plant while rushing humanitarian relief to the country's northeast, where the March 11 quake and tsunami wiped out whole communities, leaving at least 21,000 dead or missing and more than 350,000 homeless.
There are no official estimates yet, but Economics Minister Kaoru Yosano told Reuters last week the total economic impact could exceed 20 trillion yen ($247 billion).
The government may pass two or more extra budget with the first batch possibly in April or May, even before official damage estimates are ready, the ruling party's secretary-general Katsuya Okada said.
"At this stage, there's no way for us to have an estimate of how much the cost of reconstruction would add up to. Therefore, it will be focused on urgent measures," Okada told reporters.
He said another more comprehensive emergency budget could be drafted later once the scale of the devastation is clearer.
The enormity of the task prompted Prime Minister Naoto Kan to invite the leader of the main opposition party to join the cabinet as his deputy in charge of disaster relief.
The offer was swiftly rejected, but on Tuesday Yosano renewed the appeal, saying Japan should form a grand coalition to better cope with the crisis.
"I think it is best to form a grand coalition to speed up political decisions," Yosano told reporters.
Before the quake, opposition parties, which control parliament's upper house, had been trying to force an early election by blocking several bills needed to implement the 2011/2012 budget, such as one authorizing the government to issue new bonds.
The government will still need opposition deputies' votes to pass bills related to the regular budget as well as extra budgets. However, since the disaster struck the opposition has signaled it would not stand in the way of government's emergency efforts.
It looks certain that the government will end up spending much more than after the 1995 quake in Kobe when it passed extra budgets worth more than 3 trillion yen. Some estimates put the figure this time above 10 trillion, or nearly 3 percent of gross domestic product.
While Kan said it was too early to talk about the size of such budgets or their funding, Japanese media have been speculating for days where the money might come from. In a latest such report, the Nikkei newspaper said that one option was to use 2.5 trillion yen earmarked as a subsidy to public pension funds, although Yosano dismissed that idea.
Yosano also said that the government would continue to work on tax and social security reform, which it started before the disaster struck to contain runaway public debt, now already twice the size of the $5 trillion economy.
Moody's Investors Service ratings agency said on Monday it expected Japan to finance the reconstruction mainly via a combination of shifts within the budget and new borrowing.
It also said that even though risks have increased for Japan's economy, which it now expects to shrink this year, Tokyo should have no difficulty financing the rebuilding effort.
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