Mr Hosokawa's inability to shake off allegations of shady financial deal-making in the Eighties has damaged his reputation as an anti- corruption warrior, paralysed parliament and prompted the opposition to call for his resignation.
The Japanese media, increasingly sceptical of Hosokawa's account of his past deals, went into a frenzy after two members of a small in dependent parliamentary group revealed that he had joked about quitting over dinner on Tuesday. By yesterday, the 'joke' was headline news in most of Japan's top dailies and the main topic of discussion on television chat shows.
'I never said anything about quitting,' a smiling Mr Hosokawa told reporters. 'I said absolutely nothing that could have been taken to mean I would resign.' He was more serious in denying what happened when later he met concerned members of his Japan New Party (JNP), one of eight partners in the ruling coalition that came to power last August on promises of stamping out rampant official graft.
'I was drinking with the two . . . but I didn't say I wanted to resign, nor did the thought cross my mind,' Mr Hosokawa told JNP members.
Masayoshi Takemura, the chief government spokesman, said: 'He must be more careful about making remarks that could give rise to misunderstandings.' It was time, he said, for the ruling coalition to consider the opposition's demands that Mr Hosokawa allow a full investigation of old loans to break a stalemate in parliament that has delayed passage of the nation's now overdue 1994-95 budget.
Mr Hosokawa has insisted the 100m yen (about pounds 670,000) he received in 1982 from Sagawa Kyubin, a trucking company involved in a 1992-93 payoff scandal, was a loan he had repaid by 1991.
The opposition Liberal Democratic Party (LDP) says it suspects the money was used illicitly to fund Mr Hosokawa's successful campaign for election as governor of Kumamoto, in southern Japan, in February, 1983. They are holding the budget hostage to push demands that Hosokawa produce receipts proving he repaid the Sagawa money.
The LDP also wants a financial consultant to appear before parliament to clear up doubts about a cheap loan Mr Hosokawa is said to have received in 1986 that enabled him to make a huge profit on a new share issue.
The LDP secretary-general, Yoshiro Mori, said it was only a matter of time before Mr Hosokawa steps down: 'I think he really did say he wants to quit because it's about time for him to go.'Reuse content