Japan cronyism scandal hitting Abe popularity

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The yen, which tends to perform well when markets are anxious, gained as traders eyed a suspected cover-up of a cronyism scandal involving Japanese Prime Minister Shinzo Abe and his close ally, Finance Minister Taro Aso.

The Finance Ministry has admitted it altered the contents of a document pertaining to its sale in 2016 of a plot of land in western Japan at a heavily discounted price to a school operator linked to Abe's wife Akie.

The issue a year ago sharply eroded Mr Abe's popularity. His ratings had rebounded from a slump past year, but doubts have revived with a series of fresh revelations.

The revelations are particularly troublesome for Abe, who told lawmakers in February 2017 that he would resign from parliament if he or his wife were found to have been involved in the cut-rate land sale. Former Moritomo Gakuen head Yasunori Kagoike and his wife were arrested in July on suspicion of illegally receiving subsidies.

While the prime minister's office is hoping to wait for the storm to pass, a significant erosion of Abe's political clout could cloud his prospects for winning a third term in September's Liberal Democratic Party presidential election.

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It's hard to handicap if Mr. Abe will survive the investigation which at first glance shows clear signs of corruption and cover-up.

Aso is also under fire over the scandal although the Finance Ministry insisted on Friday he had no plans to resign.

A finance ministry official said 14 items had been altered in the documents after February, when the scandal broke, at the instruction of the ministry's finance division to match testimony in Parliament.

On Monday, Abe told reporters he "feels keen responsibility" for the fabrication. While he blamed bureaucrats on Monday for the suspected cover-up, opposition lawmakers are calling for the minister to step down to take responsibility.

"I deeply apologize to the Japanese people", Abe said.

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While few analysts at this point are predicting the scandal could lead to Abe's downfall, some say it could impair the prime minister's focus on the pro-growth, reflationist economic policies that have become a hallmark of his government. Abe has said he would resign if evidence were found that they had.

Aso's backing is vital to Abe's bid for a third term and a key factor in the stability of his administration.

"The firestorm surrounding the cover-up and the land sale will continue to inhibit the administration's ability to move its agenda through the Diet", said Tobias Harris, vice president at Teneo Intelligence, a global advisory firm.

Sagawa later was promoted to National Tax Agency chief in what critics alleged was a reward for stonewalling the questioning.

Sagawa was head of the Finance Ministry department that oversaw the land deal, before being promoted previous year to tax agency chief. While LDP Secretary-General Toshihiro Nikai said Monday that his support for Abe in the party's presidential race this autumn "has not shifted at all", he also called the document alterations a "severe problem".

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Media attention has focused on the criminal nature of altering public documents with many saying bureaucrats would not have done this without political pressure.