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Why is Japan Post going to be privatized?

A look at the motives behind the move -- and the strategy for pulling it off

by Hiroko Nakata

After months of government debate, the Cabinet on Friday will formally approve a plan to privatize the government-run Japan Post.

Below are questions and answers regarding the privatization.

Q. Why does the government want to privatize the postal system?

A. The government believes the system is preventing a large amount of money from circulating in the nation’s economy.

Japan Post holds a massive amount of personal funds in its postal savings and “kampo” life insurance. Most of the money, instead of being put into bank accounts, stocks and other financial products, is almost automatically invested in government bonds. This keeps hundreds of trillions of yen from being traded in other private-sector activities.

The postal savings and insurance services also are backed by a government guarantee and have tax exemptions, which give them an unfair advantage over private-sector businesses, particularly banks and life insurance firms.

Postal savings now total 230 trillion yen, almost half of all the money held in savings accounts nationwide. Postal savings have increased by 73 percent since Japan’s economic bubble burst in the early 1990s, while the total amount held in bank accounts has fallen by 15 percent.

Q. How will Japan Post be privatized?

A. The government plans to privatize postal operations in phases from April 2007 through March 2017.

Japan Post will first be divided into four entities: a mail delivery company, a postal savings firm, an insurance group and a company dealing with over-the-counter services. The government will then create a holding company to oversee the earnings and organization of the four businesses.

The splitup could be delayed beyond the April 2007 deadline. A team of technical experts will determine by the end of this year whether the privatized entities will be able to create the necessary computer systems by 2007.

Separating the entity into four businesses is believed necessary to keep the deficit-ridden mail segment from affecting the other entities.

Mail services currently have excess liabilities worth 550 billion yen, which are covered by the assets from postal savings and insurance.

Q. What groups oppose the privatization plan?

A. The biggest hurdle for privatization is a strong political lobby against the proposal. Influential lawmakers in the Liberal Democratic Party oppose the plan because some of their political supporters are postmasters, who are against the plan.

The postal labor unions are opposed, as some of the 270,000 full-time and 100,000 temporary and part-time employees may lose their jobs as a result of privatization.

Q. Are there any other problems facing the plan?

A. The privatization is complicated by Japan Post’s significant holdings of government bonds — about 25 percent of the 570 trillion yen in outstanding bonds.

Experts warn that changing Japan Post too quickly would shrink the amount of postal savings to the point that it could force Japan Post to reduce its bond holdings. That move could damage the bond market and lead to a surge in interest rates, which would have a negative impact on the economy.