Ozawa, in the coming months, will face a trial on charges related to the false reporting of land purchases and loans made in 2004 and 2005. But Ozawa's indictment could also hinder Kan as he tries to build consensus on policies aimed at addressing Japan's massive debt and stagnant economy.
Ozawa, the former DPJ leader, still controls a powerful faction of loyalists - a group that Kan has frozen from top cabinet positions. Kan hinted earlier this month that Ozawa should leave the party or resign his parliament seat if indicted, to "focus his energies on the trial."
Ozawa, 68, has denied any wrongdoing and has shown no interest in ending his colorful, contentious political career. At a news conference Monday, Ozawa said he has "nothing to be ashamed of" and has no plans to leave parliament or the party.
Known as a skilled backroom dealer, Ozawa guided the ruling party to its landmark 2009 election victory, when it ended a half-century of near-uninterrupted Liberal Democratic Party rule. But in September, he lost a bid to become prime minister - a sign of the popularity hit he has taken during the scandal.
Previously, the fundraising investigation had led to the indictment of three Ozawa aides. But Tokyo prosecutors originally declined to charge Ozawa, citing a lack of evidence. An indictment became mandatory about four months ago because of the ruling of a judicial panel, similar to a grand jury.
Since then, a debate has emerged among Japan's lawmakers on whether to drag Ozawa into the Diet - the Japanese parliament - to explain himself.
Opposition party leaders want Ozawa to testify under oath in the Diet. Also, Kan said at a Jan. 4 news conference that he would like Ozawa to testify. Ozawa has expressed no interest in complying, however, saying he will make his position clear in the trial.