Japan's finance ministry on Monday acknowledged that documents in a suspected cronyism scandal had been doctored.
The admission that public documents have been tampered with is likely to deal a heavy blow to the administration of Prime Minister Shinzo Abe, political watchers said.
The dollar recouped early losses to trade around ¥106.60 in Tokyo late Monday, attracting buybacks after Finance Minister Taro Aso signaled his intention not to step down over an alleged favoritism scandal involving a sale of state land.
The controversial school also had ties to Abe's wife, Akie, who at one point was going to be the school's honorary principal.
The records include a comment from Yasunori Kagoike, the former head of Moritomo Gakuen, citing Akie Abe as telling him: "This is good land so please proceed". Victory in the LDP September leadership vote would put him on track to become Japan's longest-serving premier.
The doubts are also putting pressure on Aso to resign.
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Aso told a news conference on Friday that several officials at his ministry's division in charge of the sale were involved in altering the documents.
In relation to the unfolding document-tampering scandal, National Tax Agency Commissioner Nobuhisa Sagawa, who was director general of the ministry's Financial Bureau when the documents were submitted to the Diet, stepped down from the top agency post on Friday to take responsibility for causing confusion in the Diet.
Abe appeared to have ridden out the storm but the scandal has hit the headlines again, with the finance ministry expected to admit some key passages in the land sale documents were removed before being presented to MPs.
The scandal emerged previous year and concerns the sale of land to a supporter of Abe at a price said to be around one tenth of its market value.
Some LDP members said the saga could undermine the party.
His ruling bloc won a two-thirds "super majority" in a October lower house poll, helped by opposition disarray. Non-support rose to 42 percent and 80 percent said that the matter had not been handled appropriately.