By Hideyuki Sano
TOKYO (Reuters) - Japanese Finance Minister Shoichi Nakagawa said on Tuesday he would resign after being forced to deny he was drunk at a G7 news conference, dealing a fresh blow to unpopular Prime Minister Taro Aso in an election year.
But Nakagawa's offer to step down after parliament passed budget bills was unlikely to satisfy an emboldened opposition, scenting victory in an election that must be held no later than October, analysts said.
"It's extremely damaging politically for Aso. Nakagawa is saying he will quit after the budget and related bills pass parliament but, I'm not sure whether the cabinet itself would last that long. Aso might be forced to quit before that," said Koichi Haji, chief economist at NLI Research Institute.
"With Nakagawa quitting, the government lacks a person in charge to come up with further steps to support an economy that is worsening sharply."
Aso is trying to pass an extra budget for the fiscal year ending on March 31 as well as a record 88.5 trillion yen (679 billion pounds) budget for the year to March 2010 to help stimulate the economy, now sinking deeper into recession.
Nakagawa told reporters he intended to resign after the government's budget was passed by parliament's lower house, although the exact timing of his departure was unclear.
At the Group of Seven news conference in Rome, Nakagawa slurred his words and appeared to fall asleep at one point.
He repeated on Tuesday that he had not done more than sip some wine before the news conference and cold medicine had affected his behaviour.
Aso asked his close ally Nakagawa to stay in his post on Monday, but pressure for the minister to resign emerged from within his own Liberal Democratic Party (LDP).
EMBOLDENED OPPOSITION
Emboldened opposition parties had been set to grill Nakagawa again in parliament and have said they would submit a censure motion to the upper house if his answers fail to satisfy.
A censure is non-binding, but a previous cabinet minister quit after a similar resolution.
The fuss over Nakagawa's behaviour at the G7 news conference comes as Aso's public support is plummeting -- below 10 percent in one survey published on Sunday -- ahead of the election.
Media polls show the main opposition Democratic Party of Japan has a good shot at ousting Aso's Liberal Democrats, ending more than 50 years of almost unbroken rule.
One budget-related bill is stuck in the opposition controlled upper house while the budget for the 2009/10 fiscal year, which starts on April 1, is being debated in the lower house.
Annual budgets typically are enacted by the end of March but this year's could be stalled by the political fuss.
($1=91.68 Yen)
(Additional reporting by Chisa Fujioka and Yuzo Saeki; Writing by Linda Sieg, Editing by Dean Yates)
