Prime Minister Junichiro Koizumi suggested Wednesday he may abolish the 30 trillion yen cap on new government bond issues in the fiscal 2003 budget.

The cap has been a pillar of his crumbling reform movement.

"I will decide (whether the government lifts the cap) after considering the economic situation in the next fiscal year," Koizumi said at his office.

Koizumi also inferred that the fiscal 2003 budget allocation for public works projects may be slashed despite a request to the contrary by ruling party lawmakers.

"It's a strong request, but it will be difficult (to meet) because we don't have much money," he said.

In the fiscal 2002 budget, Koizumi's administration cut the allocation for public works projects by 10.4 percent from fiscal 2001 levels.

Some lawmakers in the ruling coalition, which is led by Koizumi's Liberal Democratic Party, are calling for a boost in the budget earmarked for public works as an economic stimulus measure.

Koizumi's remarks came amid efforts by the Finance Ministry to set a ceiling in late July for budgetary requests to be submitted by government ministries and agencies later this year.

Post bills move ahead

The House of Councilors on Wednesday began deliberating a set of postal deregulation bills passed the day before by the more powerful House of Representatives.

The Lower House's approval has virtually secured the legislation's passage through the Diet, possibly by as early as July 24. The current Diet session ends July 31.

The four bills, designed to create a public corporation in April to take over the government-run postal services of mail delivery, postal savings and life insurance, were explained during an Upper House plenary session by Toranosuke Katayama, minister of public management, home affairs, posts and telecommunications.

The legislation would also allow private firms to enter the mail delivery service market, although the bills contain onerous regulations that have already deterred a number of potential entrants.

Prime Minister Junichiro Koizumi, a longtime advocate of the privatization of postal services, told the Upper House the legislation would "offer the public expanded choices and a variety of services, while maintaining the universal quality of the services."

Referring to the contentious issue of privatizing the public corporation at a later date, Koizumi said he would like to hear what the public has to say after the bills are legislated. A Koizumi-led private consultation group is expected to make recommendations on the matter.

"Personally, I have long believed the public corporation should be privatized," he said, but added that debate at present should concentrate on the bills. "It is possible we can discuss (the bills) separately" from the privatization issue.

Meanwhile, Finance Minister Masajuro Shiokawa said his ministry and the postal ministry will work to ensure the public corporation manages the funds from the postal savings and life insurance programs in a fair manner.

"Public funds should be managed based on fair rules and should not negatively affect the private-sector financial markets," he said, adding that investing the funds in government bonds would be the safest path for the public corporation.

The government submitted the bills to the Diet in April, but opposing lawmakers, including some in the ruling Liberal Democratic Party, waged a campaign against the bills.

In line with a proposal by the ruling coalition, the Lower House revised the bill on the launch of the public corporation to allow the firm to set up subsidiaries.

The bill was also amended to stipulate that the corporation would have post offices set up "universally throughout the country," meaning the current nationwide network of post offices would not be tampered with.

The phrase was added because some LDP lawmakers feared that reforming the system would lead to a reduced number of post offices, which have proven to be effective vote-getters for the LDP.