The ruling Democrats are negotiating with opposition parties that control the upper house to secure their support, with the aim of submitting bills on Oct. 28 and passing them next month, but they could struggle to get backing for key revenue provisions. 

The 12.1 trillion yen budget earmarks 9.24 trillion yen for reconstruction spending, including about 2 trillion yen for subsidies and other measures to help companies cope with a strong yen and stem moves by firms to shift production abroad. 

The extra budget brings the value of all budgets for this fiscal year to a record 106 trillion yen. It is Japan's second-biggest extra budget ever after one worth about 14 trillion yen that was compiled in 2009/10 to respond to the global financial crisis. 

With public debt twice the size of Japan's $5 trillion economy, the government faces a delicate balancing act to pay for its biggest reconstruction effort since the years after World War Two without choking off a fragile economic recovery. 

"There can be no real reconstruction in stricken areas without a revival in Japan's economy. With this in mind, we pay heed to the issue of hollowing out of industry on impacts from the yen's recent excessive rise," the government said. 

The government will boost its war chest for currency intervention by 15 trillion yen by making tweaks to the state budget's general rules in the extra budget to raise the borrowing limit.

Tokyo plans total spending of 19 trillion yen over the next five years to rebuild the northeast coastal areas devastated by the March 11 disaster, which includes 6 trillion yen already passed by Parliament in two extra budgets for the year to next March. 

In the third extra budget, the government plans to spend 355 billion yen on steps that include removing and disposing soil contaminated by the world's worst nuclear crisis in 25 years, which was triggered by the magnitude 9.0 quake and huge tsunami. 

The government also will expand a framework in the extra budget to raise a cap on the issuance of special-purpose bonds from 2 trillion yen to 5 trillion yen to help a newly established organization handle compensation to those affected by the nuclear disaster. 

The government will provide local tax grants of 1.66 trillion yen to ease the fiscal burden on the disaster-stricken local governments and set up a subsidy of another 1.56 trillion yen to help them carry out reconstruction projects including land readjustment and mass relocation. 

Japan will also spend 2 trillion yen on subsidies to encourage companies buffeted by a strong yen to keep factories and jobs in the country. 

It will also beef up a credit facility aimed at encouraging Japanese firms to take advantage of their robust currency to acquire overseas companies and to buy resource assets. 

The yen is close to its all-time high of 75.94 per dollar hit in mid-August, reducing the value of profits earned abroad by Japanese firms and making their exports less competitive.   

Since September last year, the government has intervened twice on its own and once jointly with other Group of Seven rich nations to cool the yen's gains. But the effects of intervention have proved short-lived due to Europe's sovereign debt crisis, which is sending investors into perceived safe-haven assets such as the Japanese currency. 

The bulk of Japan's third extra budget would be funded by reconstruction bonds worth 11.55 trillion yen, which under an initial government plan would be redeemed by fiscal 2022/23. 

But Seiji Maehara, the policy chief of the Democrats, proposed on Thursday extending the redemption period for reconstruction bonds to 15 years in a meeting with his opposition counterparts who are keen to ease taxpayers' burden. 

The government will submit to parliament on Oct. 28 another bill aimed at raising taxes in items such as corporate and income taxes, with the proceeds to be used to redeem the bonds. 

To limit the tax burden, the government aims for non-tax revenue or revenue savings of 7 trillion yen or more, largely through sales of government shares in Japan Tobacco Inc., energy-related firms and Japan Post.

But some of the planned share sales would require passing legislation that faces political hurdles, including likely stiff objections from the Liberal Democrats, the largest opposition.