The investigation, understood to be linked partly to the corporate manoeuvres of the scandal-hit Livedoor last year, is potentially more explosive than the downfall in January of Takafumi Horie, Livedoor’s former president.

Mr Murakami’s infamous “fund” — the wide portfolio of investments by his company M&A Consulting (MAC) — has dominated numerous bid battles and company restructurings in Japan over recent years. At present it is at the centre of an emotional tussle for Hanshin Electric Railway — the main operator of trains in Osaka, Japan’s second-biggest city, and the owner of a baseball team with a famously devoted fan-base.

Sources close to the inquiry say that it centres on alleged irregularities with trading in shares in Nippon Broadcasting System shortly before Livedoor made its takeover bid for it. The sources told The Times yesterday that Mr Murakami was also being scrutinised by securities regulators over dealings in shares in two other companies, Dream Technologies and Shoei.

Insider dealing carries a maximum prison sentence of three years — as Mr Murakami well knows, since, during his time as a bureaucrat, he was heavily involved in drawing up laws on mergers and acquisitions.

As with Mr Horie, Mr Murakami’s aggressive style of value investment, his “Wall Street style” of shareholder activism and his use of large stakes to shake up complacent management have polarised public reactions. Many of his efforts have met such strong resistance that he has been forced to pull out of those companies. Some view him as a force for necessary corporate reform. Others see him as a dangerous troublemaker. Many in the latter camp feel that it is no coincidence that Mr Murakami, 46, lives in the same Roppongi Hills block of luxury flats as Mr Horie — in a part of Tokyo that is a byword for the newly rich and flash.

Since January, the market has regularly traded on rumours that Mr Murakami would be the next target of the increasingly active prosecutors. Last month, Mr Murakami said that he was moving his fund’s operations base to Singapore — which prompted Kaoru Yosano, the Financial Services Minister, to give warning that “if Murakami continues with his investments in Japan, Japanese law will naturally be applied to them”.

As the insider trading inquiry was reported by local media on Friday, an already jumpy Tokyo market reacted savagely. Brokers sent lists of MAC’s 20 biggest holdings to clients, and many of those stocks plunged by their daily trading limit on fears that a long inquiry might force MAC to reduce positions.

Unlike Japan’s recent crop of maverick entrepreneurs, Mr Murakami comes from within the system. A graduate of the Law Faculty of Tokyo University, a breeding ground for the political elite, he joined the Ministry of International Trade and Industry (now the Ministry of Economy, Trade and Industry) in 1983.

However, a maverick tendency has always been there. While a civil servant, he wrote a book, Crumbling Japan, which was never published because of objections by his superiors.

His admirers say that Mr Murakami, born in the trading city of Osaka, has a trader’s blood in his veins — his ethnic Taiwanese father runs a successful trading house.

Mr Murakami set up MAC in 1999 and soon afterwards he established MAC Japan Active Shareholder Fund, which has pushed numerous company managements into, among other things, raising dividends.

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