Japan mulls \'disaster bonds\'

Japan is considering issuing special bonds to fund reconstruction following last month\'s massive earthquake and tsunami, and imposing a new tax to repay the debt, according to a report. The new bonds would be used to finance the rebuilding of infrastructure, creating jobs and supporting local businesses, the Nikkei newspaper reported on Saturday, without citing sources. Prime Minister Naoto Kan\'s embattled government has already said it is eyeing an initial budget of more than four trillion yen ($48 billion) to finance the first wave of reconstruction in Japan\'s devastated northeast. The total cost from collapsed or damaged houses, factories and infrastructure such as roads and bridges is estimated at 16-25 trillion yen over the next three fiscal years, according to the Cabinet Office. The upper estimate would put the disaster\'s financial impact at more than double the 9.6 trillion yen of the 1995 Kobe earthquake, which killed more than 6,400 people. However, any new borrowing is likely to prove controversial in Japan, which already has the highest debt levels anywhere in the industrialised world, at around 200 percent of GDP. The new debt could be repaid though an increase in either income or consumption tax, the report said. Money raised from the special \"disaster bonds\" would be restricted to financing the recovery, and could not be used for any other purpose, it said.