So, Osawa has been formally indicted for dirty money deals. I have more than a few thoughts on this, so bear with me.
Very briefly, Ozawa's office engaged in some very dodgy and likely illegal land deals that landed him with unlawful campaign money. The subordinates that were directly responsible have already been indicted and have apparently confirmed the facts (though with Japanese prosecutors there's no guarantee it's genuine). The question has been whether Ozawa himself knew about it or approved it, and what responsibility he has as the head of the office.
The prosecutor's office has twice investigated him and twice declined to indict him, citing a lack of any evidence or wrongdoing. Ozawa himself has refused to give a sworn account for the money deals in the lower house. He has refused to leave his party posts, has refused to leave the DPJ and has refused to step down as lower house member. The refusal to give account is probably the most damaging thing; it's difficult to come up with any reason for him to refuse if he doesn't have things to hide.
A panel of citizens were tasked with going through the material, and they determined Ozawa should indeed be indicted. After a second panel did the same thing, the decision became binding, and the prosecutors are obliged to bring him to trial with the material they have. The reason for the citizen panel thing is of course that the Japanese police and judicial systems are anything but clean and trustworthy, and the judicial panels are supposed to make it harder for police and prosecutors to protect their own corrupt members or corrupt politicians from the law.
So far so good. But I agree with Ozawa - he should not step down from the lower house as a result of this indictment. For a normal indictment it's all but given that a lower-house member will resign. But this isn't a normal indictment. Remember, the prosecutors twice determined they didn't have evidence that would actually hold up in court, and they're only going to court because the citizen panel forces them to. A citizen panel that does not have legal experience, and that may well be driven as much by animosity towards Ozawa as by the strength of any evidence; he is a very polarizing political figure here, and his refusal to testify makes him look very suspicious in the eyes of the public.
A panel of private people, with no judge, no accountability, few legal limitations and no way for the accused to defend themselves, should not be able to drive an elected representative out of office. They may have simply decided they dislike Ozawa and want him gone, any actual illegal activity or not. They may of course have found that the prosecutors protected a powerful political ally and he is guilty as sin. The actual trial will (well, may - this is Japan, remember) find that out.
But whether he should occupy his lower-house seat is not up to an unaccountable panel. It is not up to prime minister Kan. It is not up to a howling press. That is between himself and the people in the fourth district of Iwate to decide. Nothing less than an actual conviction should ever force an elected member out of office. Especially a disliked, despised member - would we want majorities to be able to disenfranchise disliked local minorities at will?
Now, the DPJ may well decide he is not fit to hold a position within the party and that is fine. They may decide he is damaging the party enough that they kick him out altogether (and I would agree with such a decision). But the actual lower house seat is not - and should not be - up for discussion. It is true that a deeply unpopular figure like him may not be the most effective representative for the good folks at Iwate 4. But that's up to them to decide - not us, not the DPJ and not an impatient public.