By Leika Kihara
TOKYO (Reuters) - Japan's government is planning to issue more than 10 trillion yen ($124 billion) of emergency bonds to fund costs for disaster relief in the wake of last week's devastating earthquake, the Sankei newspaper reported on Friday.
The government will ask the Bank of Japan to underwrite the entire issue of emergency bonds, the paper said, citing "several government sources."
The law prohibits the BOJ to directly underwrite government bonds unless under "special circumstances" that warrant such action, and if parliament approves the move.
The government believes that the worst earthquake in Japan's recorded history qualifies as such "special circumstances," and so will ask the BOJ to consider doing so, the paper said.
The government is scrambling to line up money to fund disaster relief and reconstruction after the massive earthquake and tsunami, which triggered one of the world's most severe nuclear power plant accidents.
Even if the ruling Democratic Party-led government scraps some of its generous spending pledges, such as child support benefits, it can only come up with 3.3 trillion yen, the paper said.
The government also considered issuing new government bonds but that risks triggering a sharp rise in long-term interest rates given Japan's already stretched finances.
It is therefore planning to issue emergency bonds for disaster relief and ask the BOJ to underwrite them, the paper said.
(Reporting by Leika Kihara; Editing by Chris Gallagher)