TOKYO (Reuters) - Japan is set to compile a third supplementary budget worth about $1.7 billion for this fiscal year to March, featuring disaster reconstruction and military spending to cope with North Korea's missile launches, government sources involved in the budget process said on Thursday.


The roughly 200 billion yen budget will comprise some 600 billion yen in spending for areas such as defense and infrastructure spending - but 420 billion yen of that will be covered by tapping reserves left over previous budgets, the sources told Reuters.


A small amount of the budget also covers tax grants and transfers to local governments.


The government will issue construction bonds worth about 100 billion yen and tap non-tax revenue worth around 100 billion yen to fund the extra budget, the sources said on condition of anonymity because the plan has not been finalised.


($1 = 117.6400 yen)


(Reporting by Takaya Yamaguchi; Writing by William Mallard and Tetsushi Kajimoto; Editing by Chang-Ran Kim)