The stock market appears to have bottomed out and will probably continue to demonstrate a firm trend in the foreseeable future, Prime Minister Junichiro Koizumi said Friday.

"When I look back now, it seems that the stock market hit the trough when (the Nikkei stock average) dipped below 8,000," Koizumi told the House of Councilors Budget Committee.

The recent surge "may reflect investors' view that stock prices had been too low for the potential and earnings performances of Japanese companies," Koizumi said.

The 225-issue Nikkei average on the Tokyo Stock Exchange plunged below the 8,000 threshold to hit a series of 20-year lows in late April before staging a sharp upturn to around 10,000.

On Friday, the Nikkei plunged 320.27 points, or 3.22 percent, to close at 9,635.35, ending below 9,700 for the first time in five sessions.

Referring to fiscal policymaking, Koizumi sounded negative about issuing government bonds to stimulate the economy.

"I don't believe economic fundamentals will improve with additional government bond issues and public works projects," he said.

Financial Services Minister Heizo Takenaka said a sound fiscal policy is crucial for the government, as the widening of the fiscal deficit could trigger a rise in interest rates.

Takenaka termed the recent upsurge in long-term interest rates "a move within expectations" and added he sees no immediate need to counteract the situation.

As a means of alleviating asset deflation, Koizumi emphasized the need for tax breaks to help boost housing investment.

Finance Minister Masajuro Shiokawa expressed readiness to work on giving preferential tax treatment to portions of housing projects within the framework of the tax reform package being weighed for the next fiscal year.