With hopes for an economic turnaround in Asia hinging largely on whether or not Japan can halt its recession, Sunday's elections for the Upper House of the Japanese Parliament may have market-moving consequences.

For starters, nobody's quite convinced that a victorious prime minister Ryutaro Hashimoto will follow through on promises of substantial tax cuts to stimulate spending. Even on Wednesday, in his firmest proclamation yet on the topic, Hashimoto declined to provide many details, other than to say the tax cuts would take effect next year.

And there are also signs of enough hesitance within his own Liberal Democratic Party to potentially de-claw any tax reform proposal.

On Friday, a Japanese news report quoted an unidentified senior member of the party as saying income taxes will be reduced by more than $28 billion in the fiscal year beginning April1, 1999, well below the $35 billion to $42 billion many would prefer.

"They're very much in the talking stage," said Jeffrey Applegate, chief investment strategist at Lehman Brothers. "But if Japan is to climb out of its mess, (tax cuts are) one thing they need to do to get demand going again along with fixing the broken lending system."

Even without the wallop of the larger amount, however, a watered down Liberal Democratic tax package holds the potential for quicker enactment and more immediate economic impact than if the entire process unraveled with weak LDP showing on Sunday.

Such an outcome might also imperil early July's anxiously awaited proposal to restore Japan's debt-ridden financial industry to health with a gradual bailout of insolvent banks.

Recent polls suggest, however, the election may leave Hashimoto and his party as many as nine seats short of the 69 needed for a majority. Such a result wouldn't wrest control of the government from LDP, which would still hold a majority in themore powerful Lower House of Parliament, but it would force the inclusion of more extreme voices from other parties, making a consensus on tax reform even more elusive.

"It could breed more infighting and spending a lot of time on power struggles. That takes time away from making decisions on the economy."Japanese markets were clearly jittery on Friday. In a ringing non-endorsement of Hashimoto's prospects in the election, the Nikkei stock average plunged 2.17 per cent. Nearly half those losses came within the last 30 minutes of trading as investors hunkered down for a potential sell off on Monday morning.

The outcome of Sunday's elections will set the tone for all global markets on Monday. "Everything else pales by comparison," Applegate said.

On Friday, the Dow Jones industrial average rose 15.96 to 9,105.74, slightly more than 100 points away from May 13's peak of 9,211.84. The blue chips rose 80.48 for the week, bringing this year's gain to nearly 1,200 points, or 15.1 per cent.

The Standard andPoor's 500 rose 5.77 on Friday to 1,164.33, up 17.91 for the week, but about two points below Wednesday's closing record of 1,166.38. For the year, the S&P 500 is up 20.0 per cent.

The Nasdaq composite index rose 3.22 to 1,943.04 on Friday, closing at a record high for the third straight day. The week's gain of 49.04 for the week pushed this year's Nasdaq advance to 23.7 per cent. The New York Stock Exchange composite index rose 1.95 on Friday to 592.18, up 6.38 for the week but about two points below Wednesday's record of 594.35.

The American stock exchange composite index rose 2.75 to 730.66 on Friday, finishing the week 8.74 higher. The Russell 2000 index of smaller companies fell 1.57 on Friday to 458.43, slashing the week's gain to just 0.12.

The Wilshire Associates equity index which represents the combined market value of all NYSE, American and Nasdaq issues ended the week at $10.9 trillion, up $60.4 billion from the previous week. A year ago, the index stood at $8.683 trillion.