The ruling Liberal Democratic Party will call for an additional economic stimulus package of more than 10 trillion yen after the Diet approves the fiscal 1998 state budget in April, top officials of the LDP have indicated.

"The dominant view in the party is that the size of the additional package should top 10 trillion yen. I want to respect this view," Taku Yamasaki, chairman of the LDP's policy research council, said on a TV program March 8.

But financial markets were apparently not impressed. The key Nikkei index on the Tokyo Stock Exchange sank below the 17,000 line March 9 on growing disappointment that Yamasaki did not mention income tax cuts.

Yamasaki said the package would concentrate on public works projects in telecommunications, the environment, education and other areas to be funded by the issuance of government bonds.

The package would also feature tax incentives for corporate capital investment and welfare services, he said.

However, Yamasaki opposed additional income tax cuts, saying they were unlikely to expand personal consumption.

He expressed the LDP's readiness to start talks with opposition parties on the contents of the additional package to stimulate the faltering economy.

Later in the day, Hiromu Nonaka, senior deputy secretary general of the LDP, supported Yamasaki's view during a speech he made in Nagasaki. Nonaka said the comment by Yamasaki will make sure the upcoming stimulus package will be at least 10 trillion yen in size.

Japan is now under strong pressure from its Group of Seven partners to spur domestic demand-led economic growth and pull its Asian neighbors out of the economic doldrums by purchasing more goods from them.

At their meeting in London in late February, finance ministers and central bankers from the G-7 major industrialized countries issued a joint statement calling on Japan to take additional fiscal action.

In a related move, U.S. Treasury Secretary Robert Rubin urged Japan to take drastic additional economic stimulus measures when he met with former Prime Minister Kiichi Miyazawa in New York on March 5.

The U.S. side has repeatedly said continued and expanded income tax cuts are one option for additional economic stimulus measures by Japan.

Japan is now implementing one-time individual income tax cuts totaling 2 trillion yen, but its impact on the economy is believed to be limited.

Past stimulus measures were compiled under the initiative of the LDP, but Yamasaki said additional measures may be mapped out jointly by the government and the LDP as a comprehensive economic package.

On March 9, Chief Cabinet Secretary Kanezo Muraoka threw his support behind a proposal that the LDP should discuss with the opposition camp an additional stimulus package for fiscal 1998.

"It is good to talk with (opposition parties)," the top government spokesman said at a news conference.

Asked about Yamasaki's proposal, Muraoka, who is also a senior LDP member, only said the party is considering a number of economic plans.

Muraoka reiterated the government's position that it will strive to get Diet approval for the fiscal 1998 budget by March 31.

Investor reaction was mixed. The Nikkei average of 225 selected issues closed at a session low of 16,972.53, down 159.44 points, or 0.93 percent, from its close March 6.

Although market players reacted favorably to Yamasaki's comments at the start of trading March 9, institutional investors took profits once the cash index topped the 17,300 mark on arbitrage-linked buying.

The upward momentum was further subdued in the afternoon as investors began to express disappointment that the new measures will not include large income tax cuts.