"There'll be no reason to sell bonds next week," said Masahiro Inoue, manager at Sumitomo Marine & Fire Insurance. "I don't think they will cut taxes because it's hard to win consensus within the LDP to do so."
Equities managers think differently. "The government knows perfectly well the markets won't stand for a repeat of Thursday," said Shoji Hirakawa, at Kokusai Securities, who sees the benchmark climbing as high as 14,600. "It's going to have to find something to placate investors - more outlays are almost a certainty, as are tax incentives for home buyers."
That prospect lifted stocks last week. The Nikkei 225 rose 1 per cent to 14,268.20. The benchmark government bond rose, pushing its yield down 2 basis points to 0.815 per cent. Prime Minister Obuchi will meet the opposition leader, Ichiro Ozawa, on Monday to discuss the possibility of a political alliance - and media reports suggest lowering the country's sales tax may be the price of Ozawa's allegiance.
"The issue of consumption tax cuts is crucial for the bond market, and if there is no reduction, [bond] futures could break above 139," said Michael Lockrow, an economist at Thomson Global Markets. More stimulus measures would be especially welcome for the banks, most of which report earnings on Friday. An economic upturn will relieve their bad-loan burden.
"The question facing fund managers is whether banks have hit bottom or not," said Yukuo Kobayashi, manager at Universal Investment Trust Management. "The government has to show its determination to get the economy moving. If they start talking about rolling back the sales tax for a couple of years, I wouldn't be surprised if we hit 15,000."
The cool reception given to last week's package - and the news that President Clinton is expected to visit Tokyo on Thursday, has ratcheted up pressure on the government to offer more a potent prescription for the ailing economy.