The Japanese government on Monday passed a 50 billion U.S. dollar extra budget for fiscal 2011 in the first of a series of emergency funding measures to aid reconstruction efforts in the wake of the March 11 earthquake and tsunami.

Embattled Prime Minister Naoto Kan and his ruling Democratic Party of Japan (DPJ) will now have to grapple to fund supplementary budgets to deal with relief and reconstruction measures with a price tag of upwards of 300 billion U.S. dollars, as the world's third largest economy, according to leading economists, slips into a temporary recession.

The government maintains that the extra budget will bolster the nation's annual real gross domestic product by 0.6 percentage point as economic growth will be supported by large-scale reconstruction efforts, but analysts and ratings agencies contend that the government's rebuilding estimates fall well short of the actual material costs.

Gloomy outlook

U.S. ratings agency Standard & Poor's last week slashed its outlook on Japan's economy from "stable" to "negative" saying that reconstruction efforts in the wake of last month's earthquake and tsunami will likely further add to Japan's debt woes and said that the government's initial reconstruction estimates of 306 billion U. S. dollars could in fact be more than double this.

S&P also suggested that Japan's weak leadership would further contribute to the nation's tattered finances as methods in dealing with reining in the largest public debt in the industrialized world at twice the nation's GDP and fiscal consolidation in general have not been pinned down and the fractious DPJ and its opposition parties are at odds over how to best utilize the resources of the central bank, or levy essential revenue from the public by raising taxes.

On Jan. 27, S&P downgraded its assessment on Japan's outlook saying the move reflected its view that Japan's government debt ratio, or the ratio of debt to GDP, already among the highest for rated sovereign debt, will continue to rise.

Meanwhile, Moody's Investors Service on Feb. 22 cut its sovereign rating to negative from stable due to heightened concern that economic and fiscal policies would fall short of the tax reform needed to achieve deficit reduction targets and curb a rise in debt.

Fitch Ratings Agency, although taking a slightly softer stance on the deterioration of Japan's public finances, has highlighted the fact that Japan's rapidly aging and declining population will put downward pressure on the Japan's economy and will likely affect future ratings.

Fiscal window dressing 

"It's of no great surprise that Japan has had its outlook on sovereign debt rating downgraded, but what is more surprising is that we still don't have a clear roadmap from the government that leads us through this period of massive downturn in industrial production and slumping exports, through the reconstruction phase and into growth," Timothy Hillman, quantitative analyst at Credit Suisse AG in Tokyo told Xinhua.

Government data revealed that in March the nation's factory output plunged a record 15.3 percent from the previous month due to destroyed infrastructures, damaged production facilities and severely disrupted key supply chains, following the twin disasters that struck the east and northeastern regions in the same month.

The figure far exceeded economists' expectations for a drop of between 11.1 and 11.5 percent, Hillman noted.