TOKYO: A funding scandal dogging the No 2 in Japan's main ruling party could lessen its chance of winning a mid-year election, raising the risk of policy stalemate as the government confronts a weak economy and deep structural problems.

Prosecutors searched Democratic Party of Japan (DPJ) Secretary-General Ichiro Ozawa's funding group and general contractor Kajima Corp over the scandal on Wednesday, adding to the woes of Prime Minister Yukio Hatoyama's four-month-old government.

Media reports about the scandal are likely to further erode voter backing for the Democrats as the opposition turn up the heat in a session of parliament from Monday, where the government aims to pass an extra budget for this fiscal year to prop up the economy and a record $1 trillion budget for the year from April.