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Japan's repair costs are manageable, says IMF

The International Monetary Fund(IMF) says it believes Japan's economy is strong enough to afford the cost of rebuilding the damage from the earthquake and tsunami.

It says it expects a short-term drop in the economy, but no long-term impact.

Ken Kang, the IMF's Asia Pacific chief, said: "Despite the extensive damage we are of the view that the economic costs are manageable."

However, it said that power shutdowns complicated prospects.

The IMF said restoring power and government reconstruction spending were crucial to resuming growth.

The country has introduced rolling power cuts for the first time since World War II, something that has interrupted production of a range of goods, from computer to car components.

Recent figures from Japan's Cabinet Office showed the country's economy contracted by 1.3% in the last three months of the year.

Despite that, it registered growth of 3.9% for the whole of 2010.

The Japanese government has put the rebuilding cost of the March 11 earthquake at $309bn(£191.8bn).

Mr Kang said: "The uncertainties from the nuclear situation and the power interruptions could weigh on the recovery by disrupting production across the country, and by weighing on corporate and household sentiment."

He quoted Japanese government figures that put the damage to the country's economically productive assets at around double that caused by the 1995 Kobe earthquake, but said the country was strong enough to cope.

The IMF Japan mission chief, Mahmoud Pradhan, pointed to the high level of domestic savings by the Japanese, saying the country had a "relatively ample" pool of savings that it can use to finance its own reconstruction needs.

Both IMF spokesmen praised Japanese institutions, especially the Bank of Japan, for their "decisive and swift" response to the quake.

They said the government had $16bn available to start the recovery and would not need external help, nor would the disaster impact on the global economy in terms of significantly higher oil or other commodity prices over the long term.

Economic data released on Friday showed consumer prices fell 0.3% in February.

Deflation has been one of the country's barriers to growth as people put off buying goods in the expectation that prices will be lower if they wait.

But analysts expect that to change in the near future, partly because shortages of some food and drink caused by the earthquake, and subsequent nuclear contamination, may push up prices.

BBC News

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