TOKYO - Moves to ditch unpopular Prime Minister Taro Aso are likely to grow ahead of a national election after the ruling bloc lost a key local race on Sunday, but the opposition has its own headache over a funding scandal.

The latest opinion polls showed the Democrats lead Aso's Liberal Democratic Party (LDP) ahead of a lower house election due by October, but the gap has shrunk after the Democratic Party's leader admitted misreporting donations.

Below are scenarios for how developments may unfold before the election. No major economic legislation is before parliament, so the jockeying is unlikely to have an immediate impact on policy, and ultimately what matters is who forms the next government.

The Democrats have pledged to reduce bureaucrats' grip on policy, cut waste and pay more heed to consumers and workers' interests than to companies.

But like the LDP, they are putting priority on the need to foster an economic recovery rather than the repair of Japan's tattered public finances.

PROSPECTS OF EARLY ELECTION FADING?

Aso is thought to want to dissolve the lower house for an election on Aug. 2, Aug. 8 or Aug. 9 after returning from this week's G8 summit in Italy, for which he departs on Monday.

Some analysts say chances of that scenario are fading after an LDP candidate lost a tight race for governor of Shizuoka, central Japan, on Sunday.

A poor performance in a July 12 Tokyo Metropolitan Assembly election - seen as a bellwether for the national poll - would logically make it even less likely.

Others, though, said the possibility that a desperate Aso would dissolve parliament's lower house soon after the Tokyo election could not be ruled out.

PARTY DUMPS ASO

Moves to dump Aso are expected to heat up following Sunday's local election loss and intensify further if the LDP loses its status as top party in the Tokyo assembly, with possible successors including Health Minister Yoichi Masuzoe.

But Aso is the third prime minister to take office since the LDP won big in the last general election for the lower house in 2005, so changing leaders again might well outrage voters.

Finding a successor popular enough to turn the tide for the ruling bloc could be difficult. The LDP's poor outlook has also prompted talk of new parties, with former internal affairs minister Kunio Hatoyama, who quit the cabinet last month, and ex-financial service minister Yoshimi Watanabe, who left the LDP in January, possible focal points.

WAITING GAME

A weakened Aso might hold on in hopes that huge government stimulus steps will bolster signs of recovery from Japan's worst recession since World War Two, encouraging voters to stick with the ruling bloc.

Possible election dates in this scenario include Aug. 30, Sept. 6 and even Oct. 18.

LDP heavyweights will likely be more inclined to wait after recent surveys showed that a scandal over improper reporting of political donations by Democratic Party leader Yukio Hatoyama is eroding the opposition party's lead over the long-ruling party.

The Democrats have already lost one leader to a funding scandal and some analysts said further erosion of voter support might even prompt them to ditch Hatoyama for Secretary-General Katsuya Okada, a policy-maven with a "Mr. Clean" image.

But the ruling party itself is far from immune to scandals.

DEMOCRATS' WIN STILL LIKELY

The Democratic Party still looks on track to take power in the general election, although the scandal over Hatoyama's donations is endangering its chances of winning a majority without two small allies, one leftist and one conservative.

Even if the Democrats win a majority on their own, they are expected to form a coalition with those allies, since their cooperation is needed to control the upper house.

That could make policy formation a bit bumpy.

Should the ruling bloc manage to cling to power, it looks certain to lose the two-thirds majority that allows it to override the opposition-controlled upper house.

That means policies would become even harder to implement, unless lawmakers switch sides or form a "grand coalition".