Japan PM says Ozawa to stay on as party No.2

TOKYO (Reuters) - Japanese Prime Minister Yukio Hatoyama said on Thursday he would keep Ichiro Ozawa on as the ruling party's No.2, a day after prosecutors searched the office of Ozawa's funding group over possible irregularities.

Recent polls show support for Hatoyama's four-month old government has leveled off at around 50 percent after initial highs above 70 percent, but the widening scandal relating to a land purchase could cause the slide to resume ahead of a mid-year election for parliament's upper house.

"We will do our best to make sure that there will be as little impact as possible on parliament," Hatoyama told reporters. Parliament is set to convene on Monday.

Ozawa, the secretary-general of the ruling Democratic Party, has apologized over the affair and said there may have been "miscalculations" but he has denied any intentional wrong-doing.

Over 90 percent of respondents to a Yomiuri newspaper survey published on Monday said the 67-year-old political heavyweight has not explained the issue properly.

"They (Ozawa's statements) are not something that we can accept ... Mr. Ozawa should respond to the prosecutors' request for questioning and fulfill his responsibility to explain to the people," the conservative daily said in an editorial.

"Why are Democratic lawmakers silent? ... The Democratic Party should not take the position of letting sleeping dogs lie. They should realize that their ability to manage their affairs is in question," the Yomiuri said.

Even some within his own party said Ozawa needs to do a better job of explaining.

"No one probably felt like they understood (Ozawa's statements)," Kozo Watanabe, a 77-year-old Democratic lawmaker and a former party adviser, said on national broadcaster NHK.

"If Ozawa is innocent then I hope he will fulfill his responsibility to explain straightforwardly to the people."

Media reports say the scandal is over money for a land purchase that came from Ozawa and was not properly included in funding reports. Media have also raised questions about the source of the money.

Ozawa's image had already been tarnished by the indictment of an aide for taking illegal corporate donations, prompting him to quit as party leader last May.

Analysts say support for the government and the party could fall if Ozawa, widely seen as the most influential figure in the Democratic Party, is forced to step down ahead of the election. But it remains to be seen how the investigation will play out.

"It (news of the search) may affect public support, which has been fairly stable over the year-end and New Year. But it is not clear if suspicions about Ozawa will reflect on the Democratic Party administration as a whole," said Katsuhiko Nakamura, director of research at think-tank Asia Forum Japan.

"And it's hard to imagine that any fall in support will translate into gains for the (main opposition) Liberal Democratic Party, which lacks cohesiveness."

Hatoyama is also under a cloud over a separate political funding scandal in which two of his former aides were charged over falsified funding records, but a majority of voters say the prime minister does not need to resign.

(Additional reporting by Isabel Reynolds; Editing by Jerry Norton)