His political office has been under investigation for illegal campaign donations and related things for over a year, but now funny money and a shady land deal is being traced directly to his office rather than his campaign organization. His personal secretary received what very much looks like payback from a construction company in return for receiving a dam construction contract, and two aides of his have just been arrested.
The reactions from DPJ has been supportive all along, but the tone seems to have shifted lately. Comments from DPJ members talk about how Ozawa will fight this to the end (but not that the commenter wants him to do so), and that the prosecutors will be in trouble if they fail to come up with credible evidence (but not that there is no evidence to find). Comments about how Ozawa is innocent are conspicuously thin on the ground. Hatoyama - whose own funding scandal seems to be blowing over - says he has no intention of asking Ozawa to step down. Of course, that's exactly the kind of thing you'd say about a week before you "reluctantly accept" the scandal-hit subject's resignation "to spend more time with their family".
Some people such as MTC see a political motive in the prosecutor's zeal in investigating Ozawa specifically, while letting LDP politicians infractions slide. It's quite true that the judicial branch is not nearly as apolitical and independent as it is in other countries, and it would not be the first time the police and prosecutors have affected the political process.
My take? He's dirty and the prosecutors - politically motivated or not - will be able to make a good enough case that he'll have to resign from politics. Just because the police has an underhanded motive doesn't mean they aren't right in this case. Japanese politics is famous for its endemic money troubles and illegal deals - it's frequently stated that you can't win a Japanese election without breaking the law - and Ozawa is practically the poster boy for the scheming, double-dealing Japanese politician. It's certainly possible that he hasn't taken dirty money from the construction industry. It's also possible that the pope is an atheist, that the moon landings were faked and that Elvis is still alive, but I wouldn't want to take a bet on it.
When Ozawa took the reins of the DPJ it was a party in total disarray. It wasn't a unified party as much as a collection of disparate groups with the burning desire to take down the LDP as its only common cause. The party was adrift, rocked by scandals and leadership issues, and he acted as an anchor, giving the party a coherent program and a viable political strategy. It's fair to say that without Ozawa the DPJ would perhaps not exist today, and the LDP would probably still be in power.
However, Ozawa is also an anchor to the old style of Japanese politics. He is also a consummate kingmaker and power broker1 and the media is asking, not unfairly, just how much influence he is wielding over the Hatoyama government. An important part of the DPJ program he formulated is a clean break away from this way, and that ultimately means that Ozawa himself (and, eventually, other old-style politicians) needs to go.
This may be a good time for him to step down, scandal or not. The LDP has been trying (but so far failing miserably) to discredit the DPJ through these scandals. But if these ongoing scandals are still front and center in the news in July and the upper house election they can probably hurt the DPJ. As Ozawa will need to step down at some point anyhow, this development may actually do the DPJ (and Ozawa's own health) some good by forcing his hand.
#1 In an earlier era and different place he'd be the Grand Vizier constantly scheming behind the Caliphs back, complete with pointy beard and evil cackling laughter.