Ratings of Japan PM, ruling party fall on scandal

TOKYO (Reuters) - Voter support for Japanese Prime Minister Yukio Hatoyama and his party has fallen due to a funding scandal linked to his powerful No.2 party executive, two media surveys showed on Monday, raising the risk of a policy stalemate.

Opposition parties have threatened to boycott parliamentary debate on an extra budget to prop up the economy if the ruling Democratic Party dodges questions about the scandal ensnaring its secretary-general, Ichiro Ozawa.

The scandal could also threaten the Democrats' chances of gaining a majority in a mid-year election for parliament's upper house that they need to win to pass legislation smoothly.

Support for Hatoyama's cabinet, which had already slid since he took office four months ago due to voters' doubts about his leadership, fell to 42 percent in an Asahi newspaper poll from 48 the previous month. That was down from initial highs above 70 percent after Hatoyama took power last September.

A Yomiuri newspaper survey showed a steeper drop to 45 percent from 56 percent earlier this month.

Prosecutors have arrested three current and former Ozawa aides. Japanese media say they are probing the source of funds improperly reported by Ozawa's funding group, and suspect construction firms seeking government contracts were involved.

Hatoyama said on Saturday he would back Ozawa's decision to stay on in his key post and urged him to fight on.

That stance has drawn fire from Japanese media and the opposition as suggesting bias against the prosecutors, but Kyodo news agency said the premier repeated his position on Monday.

PRESSURE TO RESIGN

Equally disturbing for the government, the percentage of those planning to vote for the ruling party in the upper house election fell to 28 percent from 35 percent in the Yomiuri poll.

That compared to 21 percent who said they would opt for the opposition Liberal Democratic Party (LDP), little changed.

But 70 percent of respondents to the Yomiuri survey said Ozawa, who stepped down as party leader last year over a separate scandal, should resign from his No. 2 post.

"We must accept the figures from the polls sincerely," Chief Cabinet Secretary Hirofumi Hirano told a news conference.

"Parliament opens today and our mission is to enact the extra budget as quickly as possible ... and by so doing, realise policies that put priority on the people's livelihoods."

The Democrats and their allies could ignore any opposition boycott but doing so could further erode voter support.

The Democrats swept to power in an August election that ended more than half a century of nearly unbroken LDP rule, pledging to refocus spending on consumers and cut wasteful spending to help rein in Japan's ballooning public debt.

But they need to win an outright majority in parliament's less powerful upper chamber to break free of two small allies who often disagree on policy and ensure smooth passage of laws.

One of the Democratic Party's most powerful figures, Ozawa was credited by many with engineering the party's huge August election win and his expertise is thought vital to winning this year's upper house poll.

(Reporting by Yoko Nishikawa and Linda Sieg; Editing by Hugh Lawson)