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The Coming Week in Asia: Investors More Uncertain After Market's Recent Lift

It's likely to be a sobering week as the BOJ focuses on growth and the government announces its stimulus plan.

TOKYO -- With volcanic eruptions, earthquakes and flooding on everyone's mind, who has time to think about the markets?

It's been tough even for traders to concentrate on making the next yen when their televisions are filled with images of people trapped in their homes or being shuffled off to shelters after central Japan was hit by the heaviest downpour in history. Still, the markets, while soggy, were open, and trades must be made. And after the long weekend, traders and investors will have some time this week to plan tactics for the earnings rush that will start next month when companies begin to report fiscal first-half results. (Japan's markets were closed on Friday for a national holiday.)

Besides the upcoming earnings season, expectations of profit increases for large electronic manufacturers has lifted market sentiment recently. But the coming week will likely be sobering as the government talks about its supplemental budget and the central bank focuses on economic growth. The

Bank of Japan's

monthly economic report will kick-start the week, followed with a speech by central bank governor

Masaru Hayami

on Tuesday. Given that the BOJ last month hiked interest rates for the first time in a decade, many investors are waiting to see how bullish the BOJ is on the economy to gauge whether more hikes may be in store.

An upbeat economic assessment will be a boon for stocks, but overly optimistic commentary could be negative since that could signal BOJ unease. Still, most don't expect the BOJ to enter a tightening cycle, and saw the most recent increase as simply a move to signal its independence from the government.

On the government's side, it is set to announce its supplemental budget, better known as an economic stimulus plan, sometime midweek. That will be a point of contention as various political factions battle over the amount it should include. And others may say there shouldn't be a stimulus package at all given that GDP has now risen for two quarters in a row.

Over the past eight years, Japan has spent 117 trillion yen ($1.1 trillion) on such stimulus packages. However, with the extra spending mostly going toward construction projects that added merely a short-term boost to the economy, the only thing that really rose was government debt. That was one reason

Moody's Investors Service

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cut Japan's sovereign debt rating two weeks ago for the second time in two years.

Moody's criticism may have resonated in some parts of the government, however. Although some officials, like Liberal Democratic Party policy chief

Shizuka Kamei

have said they want a 10 trillion yen stimulus package,

Finance Minister Kiichi Miyazawa

said he now is planning for a 4 trillion yen plan. The markets seem to be of a mixed mind in regard to the political haggling that will now ensue.

"The stock market may like news that the government is spending more money to keep the economy going over the short term," says Yasunari Ueno, chief market economist at

Fuji Securities

. "However, if the government keeps putting off its decision on how to eventually rein in bond issuance and spending, there's really nothing to be excited about."

The government next week will also continue discussions on overhauling the tax system. Many experts reckon the only way to tackle the government debt, which at almost 136% of GDP is among the highest for an industrialized nation, is through a tax hike.

But don't bet on that happening. The last time the government hiked taxes -- it raised the consumption tax in April 1997 -- consumers were appalled and stopped spending, pushing Japan back into recession. And even Prime Minister Yoshiro Mori, who is tainted by a new scandal almost every month, is not daring enough to make the same mistake twice in three years.