By Junko Fujita and Rie Ishiguro
YAMADA, Japan (Reuters) - Shigeo Osugi walks around concrete foundations where his coastal town restaurant "Migoto" stood before a towering tsunami washed it away last year.
"I will stay in Yamada because I have friends here and they supported me for a long time," he says, pointing to the area that was once the kitchen where he and his two sons prepared meals for up to 100 customers.
Yamada is one of the many small towns dotted along the coast of Japan's northeast Tohoku region that was ravaged by the huge earthquake and tsunami it triggered on March 11 last year.
Osugi is insistent that he is not a victim because his home survived the tidal onslaught. He is already using it to make take-away lunch sets and next month he plans to reopen "Migoto" at a temporary location.
The question is will his customers come back?
For tsunami graphic http://link.reuters.com/muh86s
With 19 trillion yen ($235 billion) in government funds pledged to rebuild and "reshape" the devastated region, Osugi has grounds for optimism.
But the fear of some is that the money will only create a glitzy coastline of ghost towns.
Yosuke Hirayama, professor of housing and urban studies at Kobe University, who is assisting with the reconstruction, says the extra budget is just the starting price.
"There are questions about operational costs after reconstruction projects are completed and whether any town will continue to exist given their declining and ageing populations."
The human cost remains daunting a year after the magnitude 9.0 earthquake set off the wall of water that ripped through Tohoku's coastline, killing nearly 16,000 people. Nearly 3,300 are unaccounted for.
About 326,000 people still live in temporary homes. The thousands who had to flee radiation from the crippled Fukushima nuclear plant may never be able to return home.
And progress is frustratingly slow in cleaning up contaminated areas, compensating those affected by the nuclear disaster and drawing up rebuilding plans.
Already, more than 40,000 residents have quit the three disaster-hit prefectures, accelerating a trend that made the region age even faster than the rest of the country.
Osugi, who turns 65 two days before the March 11 anniversary of the disaster, and some others have stayed in part out of a sense of loyalty.
For others, it's more a question of grit and survival.
Takaaki Watanabe, 48, a fisherman from the coastal town of Minamisanriku, lost his wife, his mother and his house in the tsunami and was left with three young daughters to provide for.
Now he has teamed up with 11 other fishermen and fish farmers to cultivate seaweed and scallops. He says his late wife gave him the strength to battle on.
"Yukiko was very hardworking and had a never-give-up attitude."
REGION WITH A FUTURE
But there are believers in the future of the region's fishing and farming communities.
One is HotLand Corp which has a chain of restaurants throughout Asia that serve simple Japanese specialties - octopus balls, tempura and fried noodles.
It has moved its headquarters from north of Tokyo to the port city of Ishinomaki, where it opened a food complex last August, hiring 90 workers.
"We believe that this project should be a sustainable, long term business, not temporary volunteer work. Also, as we plan to expand our business here, we can contribute by creating more jobs and increasing tax revenue for this city," HotLand Chief Executive Morio Sase said in an emailed statement.
Sase and others are betting on the ripple effect from the massive public works projects in the region.
However, that government-sponsored boom will eventually fizzle out.
Shinichi Ookawaguchi, a senior manager at 77 Bank in Sendai, Tohoku's biggest city, gives it about six years before the boom stops being able to rely on public spending.
Much of the new business is gravitating to Sendai.
The centre of the city of 1 million is 10 km (6 miles) from the coast. But packed shopping malls and a main shopping strip hosting Louis Vuitton and Gucci outlets seem very far from the horrors of March 11.
Its population has increased by 6,300 over the past year. Its hotel occupancy rate rose 10.5 percent last year compared with a 8.5 percent drop in Tokyo, according to hotel research firm STR Global, and apartments for rent are scarce.
Realtors say that property prices have started to creep up as the red hot rental market is attracting new buyers.
"It's almost impossible to find places for a family to live and small apartments for single people are taken by corporate users. It's even hard to find parking lots," says Haruhide Kasuya at Daimaru Trading Co, a real estate broker.
"So it's natural that investors are looking at Sendai for their investment targets. We have more and more inquires for possible investments from people in Sendai and Tokyo. New houses and condos are selling very well now."
He says listing prices have yet to go up, but sellers stopped offering discounts. So effectively the market has already moved up.
One official, who asked not be identified because he was not authorized to speak to the media, said the jump in business was more than the result of replacing belongings lost in the disaster and an influx of workers.
"This boom is likely to be sustained near-term and there will likely be positive ripple effects from construction works. But sustainability beyond that seems to depend on how the redesigning of towns will shape up."
Statistics bear up his relative optimism.
January car registrations rose 46 percent in Tohoku - the region comprising Fukushima, Iwate and Miyagi prefectures - 10 points above the nationwide figure. Bank lending grew 2 percent, double the national rate in December. The month's department store sales rose 4.9 pct from a year earlier.
Employers are even complaining of labor shortages.
"We are severely short staffed. We just can't find people to work for us," says Tsutomu Fukamatsu, president of Sendai-based construction company Fukamatsu-Gumi.
"We want people from other parts of Japan but then we cannot find accommodation for them because little housing is available."
Shinnichi Hayasaka, president of a start-up Sendai contractor Risecity, says he has been looking for two months for a receptionist, a job that used to attract 100 applicants.
But Fukamatsu says contractors are also wary about rapidly boosting their workforce, concerned that they will need to lay off people once government contracts to rebuild damaged roads, bridges and other infrastructure run out.
Kasuya, the real estate broker, says those keen to cash in on the rental market boom also seem to assume that it won't last.
"Buyers are expecting this situation to last for about five years."
DARKER SIDE OF THE BOOM
If builders and restaurant and hotel operators in Sendai and other cities in the region are benefiting from the spending spree, many communities are seeing a darker side.
A lot of the new arrivals in Sendai are people who have quit the small towns in the neighboring prefectures of Iwate and Fukushima.
And while those smaller communities have drawn up rebuilding plans, the work has often yet to start, meaning jobs are scarce.
There is real fear that younger residents will drift away.
"What worries me most is that more people are leaving this city," says Akira Kimura, who heads an association of small businesses in the fishing community of Miyako.
Its population is down by about 1,300 from more than 60,000 before the disaster. Of those, 529 were killed by the tsunami or are unaccounted for. The rest have left.
To survive, towns such as Yamada, Miyako or Minamisanriku need local people, like Osugi, to hang on. But they also need to revamp industries -- fishing and farming -- and bring and retain longer-term investment and jobs.
Takahide Kiuchi, chief economist at Nomura Securities, who has travelled repeatedly to Tohoku, says delaying infrastructure investment out of concern that the region's population will continue to shrink would only make things worse.
"This would create a vicious cycle. A wait-and-see mood on the part of the government would only accelerate hollowing out of the area. Quick building of infrastructure is necessary."
REBUILDING, NOT JUST ROADS AND HOUSES
Helping those who want to rebuild their businesses is a crucial step.
The government offers various subsidies and soft loans to such businesses and the private sector is also pitching in.
For example, Osugi needs about 100 million yen to restart his restaurant and support his new venture to sell seaweed in shops and online. He plans to raise that through a combination of a bank loan and government grant plus money from a Tokyo-based microfinance fund.
Music Securities, founded by former musician Masami Komatsu to support fellow artists, later expanded into other areas and after March 11 began helping companies from the region.
It has raised about 600 million yen and operates as a hybrid between charity and business investment with half of the money pitched in by investors as grants and half acting as business investment that should bring returns.
But that investment can only pay off if bigger companies come and stay, sustaining the region's economy after the initial rebuilding boom fizzles out.
There are signs that even as Japan's manufacturers continue to shift production overseas to cut costs and get closer to fast-growing markets, some big-name players hang on.
Risecity's Hayasaka says one reason he is optimistic about his business is the recent opening of two big factories in the Sendai area -- a chip making equipment plant for Tokyo Electron and another of Central Motor Co., a unit of Toyota Motor.
"The factories will employ many people and I am sure they will need housing. So demand will be big and I strongly feel that our business will be better in the future." ($1 = 80.9400 yen)
(Additional reporting by Yuriko Nakao and Ran Chang-Kim; Writing by Tomasz Janowski and Rie Ishiguro; Editing by Jonathan Thatcher)