A former employee of the now defunct credit union for the Imperial Household Agency was arrested Thursday on suspicion of embezzling 7 million yen.
Sadao Kawakami, 56, had been the credit union's general affairs chief and was in charge of managing union members' deposits. Police alleged he took a total of 7 million yen from December 1996 to October 1998.
Police quoted him as telling investigators he used some of the money to bet on horse races.
They will continue to question him and are expected to serve fresh arrest warrants for tens of millions of yen that is also missing.
Overall, Kawakami is suspected of embezzling 340 million yen, allegedly taking the money after falsely recording the deposits in the credit union's books, the credit union said. But the statute of limitations has run out for some of those charges.
The union filed a criminal complaint against Kawakami in July with the Tokyo police.
The credit union was disbanded in July after the scandal came to light, and its operations were handed over to the Metropolitan Police Department's credit union.