The ruling coalition parties vowed to compile an "aggressive" supplementary budget to ensure support for the fledgling recovery until private sector demand can take over.

No figures were released for the budget or the overall package that will incorporate it, but officials from the three parties said they will add to the 5.5 trillion yen ($51 billion) in direct fiscal spending proposed by the finance ministry.

Budget to be `as big as possible'

Yoshio Suzuki, a policymaker for coalition member Liberal Party, predicted this core stimulus spending will come to 6.5-7 trillion yen ($60-65 billion).

The policy chief for prime minister Keizo Obuchi's Liberal Democratic Party, Shizuka Kamei, said the budget, expected to be submitted to parliament next month, must be "as big as possible".

Kamei, who has said the entire package of measures wouldlikely total 13 trillion yen ($120 billion) or more, said he hoped to finalise the details by October 24 or 25.

The parties -- the LDP, the Liberals and New Komeito -- said the budget would place priority on such areas as tax and spending help for smaller firms, high-speed railways, highway construction and airport construction, disaster evacuation areas, safer housing and year 2000 computer problems.

And in a nod to Japan's worst nuclear accident, exactly aweek earlier, the coalition promised unspecifed measures on nuclear safety.

Obuchi has promised quick action, including a supplementary budget expected to be compiled next month, to maintain the government's support to the fledgling recovery in the world's second-biggest economy.

But policymakers fear that the prospects of economic growth and a flood of new government debt will send interest rates and the yen higher -- threatening the fragile recovery. Coalition presses BoJ to curb yield, yen rises.

The coalition parties made it clear they want the Bank of Japan to block any such rises in government bond yields or the currency, although officials differed on whether they were pressing for the central bank to further loosen its already unprecedentedly easy monetary policy.

"We agreed to relay to the government that we want a further monetary easing," the LDP's Kamei told a news conference.

But the Liberals' Suzuki told Reuters Television it was wrong to interpret the coalition's stance as amounting to asking the BOJ to further loosen credit further.

Parsing the coalition's delphic statement on monetary policy -- "We will gauge the permeation of monetary easing" -- Suzuki said it meant that the parties recognised that the BoJ had already eased policy but that they hoped it would maintain its present level of one trillion yen of excess reserves in the Tokyo money market.

The BoJ has driven short-term interest rates essentially to zero by flooding the market with excess cash.

"We're saying that we're making a big supplementary budget and we don't want interest rates to rise," said Suzuki, a former BoJ executive director. "So we said that we hope the BoJ will keep the present easy monetary conditions, even though more government bonds will be issued."

Suzuki said precise methods were up to the central bank but that the coalition hoped the BoJ would act, for example, by increasing its purchases of government bonds in the secondary market.

The BoJ has previously said it had no plans to change its policy on JGB buying operations, which is to keep the purchases in line with the increase in money supply.

Yen, bond prices lower, stocks climb

Although the bond market briefly cheered the prospect of the BoJ being pressed to buy more bonds, uncertainty over the amount of fresh debt hurt prices in the end, pushing up the yield on the benchmark 10-year issue by 0.04 percentage point to 1.735 per cent by around 5 pm (0800 GMT).

Tokyo shares rose more than 1 per cent to six-week highs, largely on overnight Wall Street gains and a subdued yen.

The yen was restrained buy the political pressure on the BoJ. The dollar traded near 107.85 yen, up about 40 yen from late on Wednesday in New York.