Japan PM keeps party kingpin, plans base trip

Japan's Prime Minister Yukio Hatoyama attends a joint news conference with European Union President Herman Van Rompuy and EU Commission President Jose Manuel Barroso after the Japan EU Summit at the Prime Minister's official residence in Tokyo, April 28, 2010.

TOKYO (Reuters) - Japanese Prime Minister Yukio Hatoyama said on Wednesday he wanted to keep ruling Democratic Party Secretary-General Ichiro Ozawa in his job after a judicial review panel said he should be indicted over a funding scandal.

The panel's ruling on Tuesday, which could lead to an indictment within several months, dealt a severe blow to the already floundering party ahead of a key upper house election it needs to win to avoid policy deadlock.

"I want Secretary-General Ozawa to continue as he is," Hatoyama told reporters.

Ozawa, who is seen as a master election strategist but also as something of a liability after three former and current aides were indicted over the funding scandal, said on Tuesday his conscience was clear and that he had no plans to step down.

The Democrats, who took power just seven months ago, need to win an outright majority in the upper chamber in an election expected in July or August to avoid policy stalemate as the country strives to keep a fragile economic recovery on track and rein in a massive public debt.

FUTENMA FEUD

Pressure inside the ruling party to dump Ozawa, seen by many as the power behind Hatoyama's government, could mount but his considerable clout means many are reluctant to challenge him openly for fear he will bolt and split the party.

"I think both will stay on until the election," independent political commentator Hirotaka Futatsuki said of the pair.

"People in the DPJ question whether Ozawa is really that good at election strategy but they lack confidence that they can win without him," he added.

Hatoyama's ratings have already nosedived, eroded by the premier's perceived mishandling of a feud over a U.S. Marine base in southern Japan as well as funding scandals, dimming the chances of a decisive Democratic Party victory.

The 63-year-old premier is struggling to resolve the dispute over relocating the U.S. Marines' Futenma airbase in Okinawa by a self-imposed deadline of the end of May. Some even in his own party say he may have to resign if he fails to meet the deadline.

U.S. Assistant Secretary of State Kurt Campbell, who left a meeting with Foreign Ministry officials on Wednesday without comment, told a newspaper this week he had received a "serious" proposal from Japan that could move discussions forward.

Under a 2006 agreement still backed by Washington, Futenma's facilities were to be shifted from a city center to a less heavily populated part of Okinawa, but Hatoyama raised hopes before his election victory last year that the airbase could be moved off the island.

Hatoyama hopes to have the tiny island of Tokunoshima, northeast of Okinawa, host some of the Futenma Marines and training, while altering plans for a new runway off the coast of Okinawa to reduce the environmental impact, domestic media said.

He plans to visit Okinawa on May 4, media said, after tens of thousands of people rallied there last weekend to demand Futenma be moved off the island. Hatoyama's spokesman was unable to confirm the visit.

Tokunoshima leaders told Hatoyama in a meeting on Wednesday that his proposal was not feasible, Kyodo news agency quoted local member of parliament Takeshi Tokuda as saying.

Resistance to the airbase has grown steadily in Okinawa, where many resent bearing what they consider an unfair burden for maintaining the 50-year-old U.S.-Japan security alliance and dislike the crime, accidents and noise associated with the bases.

(Additional reporting by Linda Sieg; Editing by Paul Tait)