Japanese Prime Minister Yukio Hatoyama apologized Thursday over the falsification of his political fund reports that led to indictments earlier in the day of two of his former secretaries, but said he has no plans to step down.

Former Secretary Keiji Katsuba, 59, was indicted on a charge of falsifying the premier's funding reports, while Daisuke Haga, 55, another former secretary who also served as the chief accountant for Hatoyama's political funds, was indicted on a charge of gross negligence for failing to notice the falsification.

Katsuba has been charged with fabricating statements on the origins of around 300 million yen (3.5 million dollars) in donations to the leader of the Democratic Party of Japan (DPJ) over the last decade.

Despite the charges, the aides will avoid arrest.

The prosecutors decided not to indict the premier in connection with the case the same day.

Hatoyama's funds are managed by an organization called the Yuai Seikei Konwa-kai, and it is alleged that statements coming from that office included donations given by people who had already passed away. Katsuba was dismissed by Hatoyama in June after the allegations of false reporting emerged.

The prime minister is alleged to have received more than 1 billion yen (11 million dollars) from his mother, the daughter of the founder of tyre maker Bridgestone, over the last decade. Donations of over 1.5 million yen (17,000 dollars) a year are illegal.

Funding scandals have become a thorn in the side of the DPJ government. As well as the controversy surrounding Hatoyama, senior figure Ichiro Ozawa is also embroiled in trouble after his allegedly concealed donations from Nishimatsu Construction Corp.

With a key upper house election seven months away and the funding scandal expected to continue until spring next year, observers are watching closely to see how the DPJ handles the controversy.

The LDP has a chance to capitalize on the scandal to gain seats in the upper house and a voice in the decision-making process in that election. With this in mind, senior Liberal Democratic Party figure Toshihiro Nikai quit his posts as acting secretary general and head of the election affairs committee because he also allegedly received funds from Nishimatsu.

Top government spokesman Hirofumi Hirano said that the indictment could have an impact on the Hatoyama government's ability to carry out its work given the likelihood that the opposition will step up its attacks on the government, especially at the regular parliamentary session expected to begin next month.