TOKYO, Nov 5 (Reuters) Bets were on that Japanese opposition leader Ichiro Ozawa's offer to quit as leader of his fractious party would be accepted today, raising the prospect that he might back or even join the ruling coalition.
But analysts said that even if the Democratic Party chief did defect, he might not take enough lawmakers with him to restore a government majority in parliament's upper house, where the Democrats and their allies have the numbers to stall legislation.
Ozawa tendered his resignation on Sunday after his party rejected an offer from Prime Minister Yasuo Fukuda to forge a new ruling coalition and end a policy deadlock.
Democratic Party executives were due to consider the resignation at a 930 IST meeting.
''The Democrats are trying not to upset Ozawa and push him into leaving the party with other lawmakers,'' said Yasunori Sone, political science professor at Keio University.
''The question is, how many 'Ozawa children' are there in the upper house. We don't know.'' Fukuda said on Friday he had suggested a new political framework to resolve a policy stalemate created when the opposition won an upper house election in July.
The coalition invitation was quickly rejected by Democratic Party executives, a decision Ozawa likened to a vote of no-confidence as he had favoured discussions with the government.
Fukuda's month-old government has not been able to push policies through parliament and has had to halt a naval mission in support of US-led military operations in Afghanistan after the opposition said it would oppose it in the upper house.
POLITICAL UNCERTAINTY Some financial market players said they were watching for clues to whether Japan's policy stalemate would end.
''The market will be a tug-of-war between New York factors and domestic ones after Ozawa offered to quit,'' said Tsuyoshi Segawa, an equity strategist at Shinko Securities, adding that Ozawa's resignation could be positive if it ended the deadlock.
The mounting political uncertainty is also likely to add to investors' caution, said Yutaka Miura, deputy manager of the equity information department at Shinko Securities.
Ozawa is a veteran strategist who left Fukuda's Liberal Democratic Party (LDP) in 1993 but then joined hands again with the long-ruling party briefly a few years later.
The Democrats are an often-fractious amalgam of former LDP members, ex-Socialists and hawkish younger lawmakers who differ on security matters and other important policies, and analysts had long said they were at risk of unravelling.
Still, many thought the party had its best chance ever of taking power in the next general election after its stunning performance in the upper house poll in July.
''The Democrats' logic is simple. If they win the next lower house election, the distorted situation in parliament will be resolved,'' Sone said. ''Ozawa didn't have confidence in that, but Fukuda isn't confident about an election either.'' Ozawa's resignation -- which mirrors the sudden decision by Fukuda's predecessor, Shinzo Abe, to quit in September -- has clouded forecasts of when the next election for the powerful lower house will be held. No poll is required until late 2009.
Some analysts said the Democrats' disarray meant an early poll in January or February was now less likely than one after the national budget is enacted in late March, but others said a dissolution of the lower house in December couldn't be ruled out.
Reuters SZ RS0925