TOKYO, Jan 25 (Reuters) - Japan's leader on Monday stood by his conviction not to decide the fate of a U.S. base before the end of the May, even though the nagging issue is further eroding voter support already hurt by a funding scandal.
Prime Minister Yukio Hatoyama seemed to have even less room to manoeuvre in the feud with Washington over the Marine base in Okinawa, southern Japan, after a candidate who opposes an existing plan to relocate it won a local election on Sunday.
The vote came a day after prosecutors questioned the kingpin in his Democratic Party over the funding scandal which is clouding the outlook for the annual budget from April 1, aimed at bolstering a fragile economic recovery.
Although Japanese media said an extra budget for the current year to March 31 was likely to be enacted given the risk of public backlash over policy delays, opposition parties have called for more debate on the scandal in parliament.
Concerns over the deliberations for the 2010/11 budget could weigh on Japanese stocks in the short term and also continue to cloud voter support for Hatoyama ahead of a mid-year election for parliament's upper house.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on Japan voter support: http://r.reuters.com/myv63g
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
The Democrats need to win an outright majority in the upper house vote to reduce reliance on two small but vocal coalition partners who could add pressure for more spending and increase an already huge public debt, pushing up government bond yields.
END-MAY DEADLINE
Hatoyama brushed off concerns he could keep dithering over Tokyo's dispute with Washington over the Futenma base, which has bred voter doubts about his four month-old government's ability to manage relations with its top security ally.
'The government has promised to start from scratch and to be responsible in reaching a conclusion on this issue by the end of May,' Hatoyama told reporters. 'We will definitely fulfil that.'
A weekend poll by broadcaster TBS showed the government's approval rate at 46.4 percent, down 6.6 points from earlier this month and below the disapproval rate of 53.1 percent.
Hatoyama faces an increasingly tough decision on the airbase, which under a 2006 deal with Washington was to be relocated to the city of Nago in a less crowded part of the southern island.
Washington wants Japan to implement the plan. But Hatoyama is under pressure from his tiny coalition allies to stick to a pledge to move Futenma off the island, where many residents feel they shoulder an unfair share of U.S. forces.
Given Hatoyama's growing headaches, the 2010/11 budget, if not the extra budget as well, could become a political football, said Tsuneo Watanabe, a senior fellow at the Tokyo Foundation think tank.
The key could be the fate of the Democrats' kingpin Ichiro Ozawa, who Hatoyama has stood by despite his funding scandal because his undisputed electioneering skills are seen as important to the party winning the upper house election.
Ozawa has denied any wrongdoing in the scandal that has led to the arrests of three current and former aides on suspicion of misreporting political donations.
'The real battle will be concerning the annual budget,' Watanabe said, adding that Ozawa might decide to step down from his No.2 post while keeping actual control of the campaign in exchange for smooth passage of the budget.
Watanabe also said Hatoyama might eventually have to step down over the Futenma dispute, especially if he opts for the original plan to keep Washington happy. Despite the anti-base mayoral candidate's victory, the vote was extremely close, reflecting divided local opinion.
(Additional reporting by Linda Sieg, Yoko Nishikawa; Editing by Paul Tait)
((chisa.fujioka@thomsonreuters.com; Reuters Messaging: chisa.fujioka.reuters.com@reuters.net; +813 6441 1882)) Keywords: JAPAN POLITICS/ (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
© 2010 AFX News