Stock prices have firmed up, reflecting market expectations that Prime Minister Junichiro Koizumi will push for structural reform.

But it may be too optimistic to believe he will carry out the policy program he is advocating.

Koizumi pledged to promote structural reform while paying heed to economic activity. But stimulation and reforms are certainly tradeoffs, at least in the short-term.

With structural reform forcing inefficient firms and government institutions out of the market, it will cause a steep rise in unemployment and another recession.

Although the negative impact of reforms can usually be eased if the government can afford to boost spending, there is virtually no fiscal elbowroom left for the state. Besides, Koizumi maintains that he will press for fiscal reform.

It is fair to say that the policies he envisaged could only be implemented by an extremely competent magician.

The Liberal Democratic Party's largest faction, led by ex-Prime Minister Ryutaro Hashimoto, will surely seek to rebound from the back-seat position forced upon it by Koizumi's leadership.

Representing the interests of the construction, real estate, retail and other sectors that will be subject to Koizumi's structural reforms, the faction is expected to stage formidable resistance should Koizumi seek to drastically restructure these areas.

Although the stock market will rise for some time on public expectations of structural reform, Investors should consider the possibility that Koizumi's reforms will disappoint.