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. Last Updated: 07/27/2016

$3 Trillion Japan Post to Be Privatized

TOKYO -- Japan's postal system, along with its assets worth more than two-thirds of the economy, took its first step on Tuesday toward a privatization that could eventually have a profound impact on households and markets.

A showcase for Prime Minister Junichiro Koizumi's structural reform policy, a new semi-independent corporation named Japan Post will aim to turn around the loss-making mail service and introduce more market discipline to its savings and insurance business.

"We are trying to change the postal service so it would be more convenient for customers and better suit their needs," Japan Post President Masaharu Ikuta, a former shipping company executive hand-picked by Koizumi, told a news conference.

For now, friendlier smiles at the post office counter, a wider range of corporate services and links with Japan's ubiquitous convenience stores might be the only difference an ordinary citizen can discern.

Koizumi wants to take the postal system fully private, but still has a mountain to climb in the form of stiff opposition from politicians in his own party and there is no timetable yet.

The impact of a future privatization would be much greater for financial markets, where the postal savings (yucho) and insurance (kampo) funds are major players.

At the end of September, yucho had investment assets totaling 237 trillion yen ($2 trillion), while kampo had 123 trillion yen ($957 billion) -- compared with Japan's gross domestic product of around 500 trillion yen ($4.2 trillion).

Although old-guard politicians fiercely oppose privatization, postal reform has long been a personal quest for Koizumi, who sees the system as a major roadblock to financial sector reform and a vehicle for pork-barrel politics.

Banks and insurance firms have long complained that the two services were given an unfair advantage by being able to offer government-backed products at more attractive rates than their private-sector competitors.

Critics, including Koizumi, have pointed out that the funds collected through yucho and kampo have helped bankroll wasteful public works spending, which has helped leave Japan with the biggest public debt burden of any industrial nation.

They also complain the funds are used, mostly unsuccessfully, to boost share prices, resulting in huge unrealized losses.

At the end of March 2002, yucho and kampo had a combined latent loss on their securities investments, entrusted to trust banks, of 5.65 trillion yen ($7.8 billion).

Until two years ago, much of the postal system's funds had been controlled by the Finance Ministry under the fiscal investment and loan program, or FILP, also known as the "second budget," which the ministry used to help loss-making state corporations.

The FILP process has become less direct now, with the public investors buying so-called FILP bonds at their own discretion, but it remains murky.

The move comes hand in hand with a plan Koizumi pushed through a year ago to abolish or privatize most of the state corporations -- such as Japan Highway, notorious for building toll roads bridges that never meet budget projections.

Conservative lawmakers within Koizumi's own Liberal Democratic Party have been fiercely opposed to privatizing the postal system, saying it would damage social functions post offices have in rural areas.

Such voices remain loud, despite calls for deregulation by private-sector parcel delivery firms, not least because local postmasters act as powerful vote-collection machines.