CDJ75: You can unlock stuff in Arranged Mode just fine, in this version at least. Arranged Mode has some weirdness to it in the west.

The mode was first introduced in the japanese version of the Dualshock version for PS1. And it was basically the same it is in your current version...the western difficulty, different enemy and item placement, enemies hit harder, no auto-aim ect. And you could unlock stuff just fine.

The western release of the Dualshock PS1 version however didn't just do the reverse. Instead, Arranged Mode in the western version just set the game to easy difficulty (While still being based on the western version with enemy and item placement.) and gave you a submachine gun with infinite ammo. That's all Arranged Mode was in the west, an easy mode with a cheat weapon. I'm not entirely sure but I could imagine that they didn't let you unlock stuff there.
Anyway, long story short, the western PC version did it proper and Arranged Mode became the regular japanese difficulty version with all unlockables and everything. So you'd be fine playing that version.

...since you're playing a modded japanese version though, you're fine anyway.