Japan Brief / FPCJ, No. 0771
October 4, 2007

Postal Privatization Goes into Effect in a Mixed Mood of Concern and Hope

Privatization of Japan’s postal services went into effect on October 1, ending their 136-year history as a governmental operation. The postal services have been reorganized into four companies—a bank, an insurance company, a postal services company, and a post office network company—all under a holding company, Japan Post Holdings Co., Ltd.

The newly created Japan Post Group is distinctive, among other things, for its sheer size. It is enormous by any measure—more than 330 trillion yen in the total assets of the bank and the insurance units combined, a nationwide network of 24,000 post offices, and a workforce of 240,000 people. How this gigantic and hitherto government-run operation will ease itself into the existing business environment and compete is being viewed with both apprehension and anticipation.

Of the four companies in the group, the flagship is Japan Post Bank, which has inherited 187 trillion yen in deposits from the postal savings system. The vastness of that amount becomes impossible to ignore when it is compared with the deposits held by the nation’s megabanks—1.8 times the sum on deposit with Mitsubishi Tokyo UFJ Bank, and close to 80% of all the deposits of the three megabanks combined. As nearly 70% of the postal savings deposits are held as low risk, low return government bonds, the crucial challenge Japan Post Bank faces is how to reduce the proportion of government bonds and diversify its funds management into higher return areas, such as personal credit and mortgage loans. Commercial banks are bracing for increased competition from Japan Post Bank, whose entry other bankers view as “a whale jumping into a pond.”

Japan Post Insurance, similarly, is the behemoth of the life insurance industry. Its total assets, formerly those of the postal life insurance system, almost match the combined assets of the four largest life insurance companies in Japan. When the financial assets of Japan Post Bank and Japan Post Insurance are combined, they come close to 300 trillion yen, and account for about one-fifth of all the financial assets of the people of Japan. Big as they are, those new companies appear lacking in competitive clout, because the postal savings and insurance systems were content to attract money by offering the protection of government guarantee and other privileges, then channel the funds to the national treasury by buying government bonds.

The two remaining companies—Japan Post Service Co. and Japan Post Network Co.—are engaged in non-financial services. Japan Post Service, which handles mail and parcel delivery, intends to strengthen its home delivery and international express services in competition with existing courier service companies to make them major profit centers. The postal service company is required by law to continue to offer universal services throughout the country after the privatization. Japan Post Network operates with a network of some 24,000 post offices to provide over-the-counter services on behalf of Japan Post Service, Japan Post Bank, and Japan Post Insurance. It will also enter into retail businesses of its own, such as running convenience stores.

Privatization of postal services came about after it became the full-blown political goal of former Prime Minister Junichiro Koizumi, who relentlessly pursued it as the symbol of his reform agenda. Koizumi’s vision captured the public’s hearts and minds, and he won a landslide in the lower house elections in 2005, which were fought essentially on the issue of postal privatization.

But privatization cannot be considered complete as long as Japan Post Holdings, which is wholly owned by the government, retains control over Japan Post Bank and Japan Post Insurance. The two companies are scheduled for listing on the stock market in about 2010, but Japan Post Holdings’ shares in them will not be sold off entirely until 2017. Moreover, the government will continue to own one-third of Japan Post Holdings itself even after 2017, which means the government will continue indirectly to have a minority interest in Japan Post Service and Japan Post Network.

Media Point to Real Objectives of Privatization
Commentaries in the media have recognized the historic significance of postal privatization and have argued that its real objectives should not be overlooked in the future.

The Nikkei in its October 1 editorial said that postal privatization was prompted by the public consensus that supported a move toward minimizing government involvement in matters that can be left to private business. “It can be described as strong rejection of the Treasury loans and investment program that fed government spending by absorbing funds through postal savings and insurance backed by government guarantees. This is a point that should not be forgotten.” “Postal savings that amount to 182 trillion yen as of the end of August should be reduced steadily and smoothly. Reasonably, that’s a scenario to be pursued.”

The Mainichi Shimbun in its October 3 editorial noted that the launch of the companies under Japan Post Holdings represented “a historical transformation of postal services that had been run as a government undertaking since their inception in 1871.” The newspaper at the same time acknowledged the strong concerns that exist about a possible decline in services and abolition of some post offices in remote areas. The objectives of the postal reform “are, in a nutshell, to add to the public’s convenience and benefit,” it added.

The Asahi Shimbun, in its October 2 editorial entitled “Japan Post must compete as a ‘normal company’,” argued: “We have already stated our concerns that both the mammoth postal bank and insurance companies are too big. Their size might hurt fair competition with private-sector rivals. The two units have combined total assets of 300 trillion yen. They are expected to reduce those assets gradually in the next 10 years until full privatization. But Japan Post’s planned pace of downsizing is too slow. It needs to hurry the process along.”

On a similar tone, the Sankei Shimbun in its September 30 editorial stated that “What’s most worrying is Japan Post Group’s expansionary policies. The original purpose of privatization was to redirect the funds in postal savings and insurance, which had ballooned under government protection, from the government to the private sector.” “In this sense,” this critical editorial commented, “the start made by Japan Post deviated from the intended philosophy of postal reform.”

(Copyright 2007 Foreign Press Center / Japan)