Scenarios: Japan PM, party don in bind over airbase, scandal

TOKYO (Reuters) - Japanese Prime Minister Yukio Hatoyama is in the hotseat ahead of an election as he tries to meet a looming deadline to resolve a feud over a U.S. airbase and pressure on a party kingpin to quit over a funding scandal.

Hatoyama said on Wednesday he wanted Democratic Party of Japan (DPJ) Secretary-general Ichiro Ozawa to stay on after a judicial review panel ruled the election mastermind should be indicted over the scandal. The ruling does not mean Ozawa must be charged immediately but could lead to prosecution in months.

Hatoyama's ratings have sunk due to the row over the U.S. Futenma airbase in southern Japan and funding scandals, dimming chances of a decisive win in an upper house poll, expected in July, that the Democrats need to pass bills smoothly as Japan copes with a fragile economy and massive public debt.

Analysts say the outlook for how the political saga plays out is murkier than ever, but below are some scenarios and their implications for policymaking.

HATOYAMA & OZAWA STAY, LIMP INTO ELECTION

Prospects: Possible

Hatoyama has pledged to resolve the row over relocating Futenma airbase on Okinawa island by the end of May and even some in his party say he may have to resign if he cannot.

Analysts, though, say Hatoyama could well cling to his post, not least because the Democrats were harshly critical of two recent predecessors from the now-opposition Liberal Democratic Party (LDP) who suddenly threw in the towel.

Hatoyama is Japan's fourth prime minister in four years.

Possible successors would also be wary of taking the post unless there were some resolution to the Futenma feud first.

Ozawa, 67, the DPJ's chief election strategist and seen by many as the power behind Hatoyama's government, wants to stay in his key post and many DPJ members are seen to be wary of trying to force him out for fear he would bolt and split the party.

The short time left before the upper house election would also make it difficult to replace the party's two top leaders.

Sliding voter support is not only dimming the chances that the DPJ can win an outright majority but raising the possibility that the party and its two tiny coalition partners may not keep their majority in the chamber, which can delay legislation.

That means the Democrats would have to revamp the coalition or seek added help, most likely from the LDP's ex-partner, the New Komeito party, one or more of the small conservative parties now being formed by LDP defectors and local politicians.

At best, policymaking would likely remain confusing and, at worst, an expanded coalition would further complicate decision-making, giving smaller parties clout in excess of their actual number of seats and increasing pressure to spend.

HATOYAMA & OZAWA QUIT, RATINGS BOUNCE LIMITED

Prospects: Possible

No DPJ heavyweights have suggested Hatoyama should step down, but analysts say the possibility cannot be ruled out, especially if the prime minister decides that Ozawa should also resign.

That's because the only way to persuade Ozawa to leave his post might be for the premier to agree to quit too.

The frontrunner to succeed Hatoyama is probably Finance Minister Naoto Kan, a quick-tempered former health minister who has pressed the central bank to do more to fight inflation and has been more positive than the premier about raising the 5 percent sales tax to fund bulging social welfare costs.

Other contenders such as Transport Minister Seiji Maehara or Foreign Minister Katsuya Okada are more popular than Kan, but might have trouble managing the fractious party.

Changing the two top leaders might give the DPJ a bit of a bounce in ratings, but would also hamper campaign strategy as the vote nears and might not be enough to give the coalition a majority in the upper house. "They're in trouble if they change the top leaders and they are in trouble if they don't," said independent political commentator Hirotaka Futatsuki.

That means the outlook for policy confusion could be much the same as if the two stay.

HATOYAMA STAYS, OZAWA GOES

Prospects: Less likely

Ozawa resigned as DPJ leader last May and backed Hatoyama as his successor ahead of the election that swept the party to power and ended more than 50 years of almost unbroken LDP rule.

But analysts say persuading him to do the same thing this time would be much harder. "It has to be a coordinated action," said Sophia University professor Koichi Nakano.

"He's much more dangerous outside (the party) and he is smarter than any of them in terms of political maneuvering."

Dumping Ozawa, whose image as an old-style fixer has become a liability among voters, might win back some independent voters but still fall short of a game-changer for the election.