(For more on Japanese politics, click on [ID:nPOLJP])
* Ozawa’s former aide set to be indicted Thursday - media
* Ozawa’s fate in focus ahead of mid-year election (Adds background)
By Yoko Nishikawa
TOKYO, Feb 3 (Reuters) - Japanese prosecutors effectively decided not to charge ruling party kingpin Ichiro Ozawa over a funding scandal that has dented government support ahead of a key election, public broadcaster NHK reported on Wednesday.
The decision is unlikely to end the affair, which threatens to scupper his Democratic Party’s chances of victory in an upper house poll expected in July. NHK said prosecutors felt they didn’t have enough evidence to make charges stick.
Ozawa’s skills as a campaign strategist have been seen as vital to the Democrats’ performance in the upper house election, which it needs to win to pass bills smoothly without relying on two tiny coalition partners and to avoid policy gridlock.
But if Ozawa, a political veteran long plagued by an image as a backroom fixer, clings to his party secretary-general post, voter suspicions over the scandal could keep eroding voter support for the government and the party.
That could spell policy paralysis and scare away investors at a time when Japan is struggling to maintain a fragile economic recovery and rein in its massive public debt. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ For a graphic on voter support see r.reuters.com/myv63g ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
A lawmaker who was formerly an aide to Ozawa and another current aide will be charged on suspicion of misreporting funds on Thursday, media reports say, boosting pressure on Ozawa to resign. Prosecutors have questioned him twice over the affair.
More than three-quarters of voters want Ozawa to step down if the lawmaker is indicted, a newspaper survey showed this week.
“Ozawa himself will want to bring down the curtain on the case but I don’t think it will end,” said political analyst Katsuhiko Nakamura of Asian Forum Japan. “What’s being questioned is his ethics as a politician, and that will continue.”
“For the DPJ, it would be easier to reach a conclusion if Ozawa was charged. From here on, they will be on a bed of nails and ... discord within the party will continue,” he said.
Transport Minister and former party leader Seiji Maehara hinted at the weekend at the possibility of dropping Ozawa, saying the party would need to demonstrate its ability to keep its house in order if the case progressed to a new stage.
Ozawa has hinted he might resign if he came under suspicion of criminal activity himself, but he has denied any intentional wrongdoing.
Prime Minister Yukio Hatoyama’s Democrats came to power in a general election for the more powerful lower house last August, promising to put more money in consumers’ hands to boost the long-stagnant economy.
Hatoyama told reporters this week he would like to have Ozawa stay in his position for the election.
A top lawmaker from the main opposition party said regardless of the prosecutors’ decision, the party would keep pressing on Ozawa over the scandal.
“I think it really lacks common sense that three of his own aides were arrested but he is not called on to account for his responsibility,” Shigeru Ishiba, policy chief of the opposition Liberal Democratic Party, told reporters earlier in the day. (Additional reporting by Isabel Reynolds; Editing by Paul Tait)