Election threat to Japan's ruling party as three arrested in funding scandal

THE second-most important official in Japan's governing party has vowed to stay in post and fight on after the arrest of a secretary and two former aides over a funding scandal.

Democratic Party secretary-general Ichiro Ozawa was credited by many with engineering last August's huge election win and his political skills are thought vital for victory in this year's upper house poll.

But the scandal is likely to erode support for the Democrats as the opposition prepares to ask awkward questions in parliament tomorrow, as the government tries to pass an extra budget for this fiscal year to prop up a weak economy.

A combative Ozawa, speaking at the party's annual convention, lashed out at Tokyo prosecutors who arrested a Democratic Party legislator who had worked as his aide and another former assistant in connection with the funding scandal late on Friday. A third aide, on trial in a separate case, was arrested anew yesterday.

"I don't know if it was deliberate or not, but the arrests seem to have been timed to coincide with our party convention," Ozawa said. "I certainly cannot accept this way of doing things.

"I will resolutely push for my own beliefs against this way of doing things, and I am determined to fight."

Prime minister Yukio Hatoyama, who analysts say relies heavily on Ozawa's clout, wants his lieutenant to stay in post.

"Secretary-general Ozawa has said that he has not broken any laws. As the leader of the Democratic Party, I believe in secretary-general Ozawa," said the prime minister, who himself has had to apologise for a separate funding scandal.

Doubts about Hatoyama's ability to make tough decisions have already eroded the government's poll ratings from early highs above 70 per cent to about 50 per cent.

Recent polls show the decline in popularity had levelled off despite last week's resignation of Japan's elderly finance minister and some market-jolting comments about currencies by his successor. But the funding scandal could again worry financial markets.

The Democrats, who have promised to reduce bureaucrats' grip on policy, have a huge majority in parliament's powerful lower house. But they need to win outright control of the upper chamber to reduce dependence on two small coalition parties that often take different stances on economic and foreign policy.

An election setback for the ruling bloc could create political deadlock, since the upper chamber can delay legislation.