With dark political and economic uncertainties hanging over the nation, the government and ruling Liberal Democratic Party are expected to face several challenges during the 1997 regular Diet session that convenes Jan. 20.The LDP, which lacks a majority in the Diet, is expected to place priority on maintaining cooperative relations with the Social Democratic Party and New Party Sakigake, at least until the budget package for fiscal 1997 is passed. However, Diet management has become tougher for the LDP because the two parties have taken stronger positions on LDP-suggested policies after downgrading their alliance with the powerful conservative party in October, following their defeats in the Lower House general election.The first issue to be tackled during the 150-day session will be a 5.2 trillion yen supplementary budget plan for fiscal 1996, which the LDP claims is urgently needed to sustain economic recovery. "We hope to have the extra budget plan pass the Diet at the end of January," LDP policy chief Taku Yamasaki told reporters earlier this week. He said quick passage is crucial to prevent further erosion in stock prices and the value of the yen.Sakigake has opposed the supplementary budget plan, saying that the planned issuance of 1.6 trillion yen in government construction bonds to cover some of the extra budget would be too huge at a time when the nation urgently needs to reduce its deficits. The total deficit that has accumulated over the years, owed by both central and local governments, is estimated to reach 440 trillion yen at the end of March.The SDP was also opposed to the extra budget plan when it was compiled last month. However, the recent poor performances of the yen and stock market have prompted some senior Socialists to support its early passage.Economists say this month's plunging stock prices reflect market players' disappointment with the package of fiscal 1997 budget plans compiled mainly by the LDP in late December. The government failed to curb outlays for public construction projects while calling for an increase of the consumption tax rate from the current 3 percent to 5 percent and terminating 2 trillion yen in special income and residential tax cuts.But the LDP has called for early passage of the 77.4 trillion yen budget. They say that its enactment within the current fiscal year would show political determination to push economic recovery.SDP leader Takako Doi has put off expressing her party's official stance on the budget plans, saying the party should first find out whether the government is serious about promoting financial structural reform.