Japan Opposition Leader`s Aide Arrested In Scandal

Television showed prosecutors going into an office of Ichiro Ozawa, the leader of the Democratic Party.

A close aide of Japanese opposition leader Ichiro Ozawa was arrested on Tuesday in a fundraising scandal that analysts say could force Ozawa to quit, ahead of an election his party had looked likely to win.

Television showed Japanese prosecutors going into one of the offices of Ozawa, the leader of the Democratic Party, which polls show has a good chance of ousting the long-ruling Liberal Democratic Party (LDP), now deeply unpopular with voters.

Prosecutors arrested the aide, who also managed accounts at a political group supporting Ozawa, on suspicion of accepting donations illegally from companies, Kyodo news agency and other Japanese media reported.

The news put pressure on the yen, currency traders in London said, as it reinforced worries about Japan's political stalemate as it fight its worst recession since World War Two.

Political analysts said Ozawa, 66, might well have to step down and that the affair could upset predictions of an opposition victory in an election that must be held by October.

"The question is, will Ozawa have to resign? I think he is likely to have to quit," said Hirotaka Futatsuki, an independent commentator.

"I don't think he can hold on because as the election approaches, he would keep being criticised over this."

The Tokyo District Prosecutors Office declined to comment on the case but Yukio Hatoyama, the Democrats' secretary-general, quoted Ozawa as saying there had been no problems.

Asked if Ozawa would have to step down, Hatoyama told reporters: "I don't think this will lead to that decision right away."

NHK public TV said the secretary denied the allegations.

Prime Minister Taro Aso, whose popular support has dropped below 10 percent in one poll and is not much higher in others, is struggling to keep his own job and faces calls from some in his party to step down before the election.

Aso is the third Japanese leader in less than two years. His two predecessors quit abruptly after their poll ratings sank in the face of a political stalemate caused by a divided parliament, where opposition parties control the upper house and can delay legislation and stymie policy.

POLITICAL STALEMATE, MURKY OUTLOOK

Speculation about Aso's future grew when the finance minister quit last month, after being forced to deny he was drunk at a G7 news conference in Rome.

The political stalemate and voters' frustrations with Aso after a series of gaffes and policy flip-flops had raised the chances for Ozawa to lead his party to victory in the next election, ending more than 50 years of nearly unbroken LDP rule.

Analysts said the new scandal could upset those calculations, unless LDP lawmakers were found to have also taken illegal donations from the same sources.

"If the affair spreads to the LDP, they won't be able to call an election soon. But if it doesn't spread and an election is called soon, it is possible that the previous outlook for a Democratic victory would be reversed," said Yasunori Sone, a political science professor at Keio University in Tokyo.

Ozawa, a former LDP heavyweight who bolted the party in 1993 and helped to briefly oust it, has struggled with competing images, one as a reformer intent on prying policy decisions out of the hands of bureaucrats and the other as an old-style backroom fixer with an autocratic management style.

But his skills at campaign strategy and his ability to hold the sometimes fractious Democratic Party together have been seen by many analysts as important, if not vital, to its success.

The yen, already under pressure as political rows slow government stimulus efforts, weakened briefly on news of the arrest. Traders said its further impact was murky.

"The yen could be bought on expectations on an early election, raising hopes Japan's political deadlock would be cleared," said Yuji Saito, from Societe Generale in Tokyo.

"Or the yen may be sold simply due to Japan selling, as it adds more distress to recent Japan's political turmoil."

Kyodo said a group managing Ozawa's political funds had accepted 14 million yen ($144,000) in donations from organisations run by former officials at a scandal-tainted construction company.

Another group headed by Ozawa had accepted 10 million yen from the same groups. The former construction company officials have also been arrested, Kyodo said.

Under Japanese law, companies can only donate money to a political party or groups managing funds for a party, not individual politicians or groups backing them personally.