Japan's nuclear crisis continues to hit economy

Engineers at Japan's crippled nuclear plant, who are struggling to regain control of reactors, are now concerned that some spent fuel rods may have been damaged by the March 11 earthquake and tsunami and could be emitting high levels of radiation.

A Reuters poll released on Thursday found business confidence, which had been recovering, fell back into negative territory for the first time this year, with the gloom spreading through both the manufacturing and service sectors.

The Reuters Tankan survey of 400 large firms found power shortages caused by the crippled Fukushima Daiichi nuclear plant had hit nearly 60 percent of local companies, disrupting production and supply chains.

The disruption to Japan's supply chains has had a global impact, with Sony Corp suspending production and the world's largest automaker Toyota Motor Corp idling plants both locally and in the United States.

The IMF has warned that unless Japan can end its nuclear crisis soon and restore power and production to normal in two to three months, its economy is set for further decline.

"There's very high uncertainty on Japan's outlook," Naoyuki Shinohara, deputy managing director of the International Monetary Fund, told Reuters in an interview on Wednesday.

"If power shortages are prolonged or if the situation at the nuclear plant deteriorates, the outlook will change...the risk is firmly to the downside," he said.

The IMF cut Japan's economic growth forecast to 1.4 percent this year from 1.6 percent, projected three months ago, and the Bank of Japan is expected to cut its January growth forecast of 1.6 percent when it issues its twice-yearly outlook on April 28.

The Japanese government has already cut its outlook for the economy, in deflation for almost 15 years.

Japan is struggling to cope with its worst crisis since World War Two, after the earthquake and 15-meter tsunami hit on March 11, leaving 28,000 people dead or missing, its northeast coast a splintered wreck and a nuclear plant with six reactors damaged.

The total cost of the triple disaster has been estimated at $300 billion, making it the world's most costly natural disaster.

The Nikkei business newspaper reported on Thursday that Japan and the United States were considering establishing a "reconstruction fund" with corporate investment from both nations. The Nikkei said an agreement on the fund was expected when U.S. Secretary of State Hilary Clinton visits Japan on April 17.

DAMAGED NUCLEAR FUEL RODS

Japan's nuclear crisis has been rated on par with the world's worst nuclear crisis at Chernobyl in 1986, although the total amount of radiation released is only a fraction of that when the nuclear plant in Ukraine exploded.

Japan has expanded the 20 km (12 miles) evacuation zone around the plant because of high accumulated radiation. No radiation-linked deaths have been reported and only 21 plant workers have been affected by minor radiation sickness.

A series of strong aftershocks this week has rattled eastern Japan, slowing the recovery effort at the Fukushima Daiichi plant due to temporary evacuations of workers and power outages.

Japan's Nuclear and Industrial Safety Agency (NISA) has asked the plant operator to assess the quake resistance of the damaged reactor buildings, and to look into how they could be reinforced against aftershocks.

With the plant's internal cooling system damaged, engineers are struggling to cool overheated fuel rods, both inside reactors and in storage pools on reactor roofs, and are pumping water onto the rods.

Some spent fuel rods stored at a pool at Daiichi's No.4 reactor may be damaged and could be emitting high levels of radiation, said the Tokyo Electric Power Co (TEPCO).

However, TEPCO said the majority of the roughly 1,300 spent fuel rods at the No.4 reactor are presumed to be undamaged.

NISA said radiation above the spent fuel rod pool at No. 4 reactor was measured at 84 millisieverts per hour on Tuesday, compared with a normal level of 0.1 microsieverts.

But TEPCO was unsure whether the higher radiation was from the pool containing the used fuel rods or from a leak in the actual reactor. Further water sampling of the pool will determine whether the rods are damaged and emitting the radiation.

Spent fuel rods take several years to cool down and need to be kept submerged in water. TEPCO is planning to move the spent fuel rods from the damaged reactors although they are yet to work out the details.

The strategy of hosing reactors to keep the rods cool has left some 60,000 tonnes of radioactive water on site, hindering access to the reactors and forcing workers to pump contaminated water into the sea due to a lack of storage.

The pumping of radioactive water stopped on Monday but has heightened tensions with neighbors China and South Korea.

Japan's nuclear safety agency said the latest tests showed radiation nearly doubled last week, to 23 times above legal limits, in the sea off Minamisoma city near the plant.

TEPCO's beleaguered president, Masataka Shimizu, said on Wednesday that TEPCO was still formulating a blueprint on how to end the nuclear crisis, almost five weeks since it started, but that the situation at the Daiichi plant had stabilized.

He also said TEPCO was working on a compensation plan.

The Yomiuri newspaper reported on Wednesday that the government may cap TEPCO's liability to as little as $24 billion for damages. Bank of America-Merrill Lynch has estimated compensation claims of more than $130 billion.