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The priority in privatizing Japan’s gigantic postal system is to quickly split its financial and postal service operations despite strong opposition, according to high-profile economist Hiroshi Kato.

Kato, 78, president of Chiba University of Commerce and a professor emeritus of Keio University, said it will take different approaches to transform the two operations of the quasi-governmental Japan Post into private companies, the final goal of the long-debated postal reform. Kato is known for his role in past privatization projects.

“Financial and transportation services have totally different business worlds,” he said.

In a draft plan to privatize the postal system released last month, Prime Minister Junichiro Koizumi’s top policy panel, the Council on Economic and Fiscal Policy, said the government will split Japan Post into four separate entities by 2017 at the latest.

It also said a stock-holding company will oversee the operations of the four businesses of postal savings, “kampo” insurance, postal delivery and over-the-counter services.

But after being blocked by industry lobbies and ruling party lawmakers with vested interests in the postal system, the panel failed to reach a conclusion on whether Japan Post will start off as one or four entities in 2007, when the privatization process begins.

Kato said that at the very least, the postal savings and insurance sector should be separated from postal delivery in 2007. Japan Post’s financial operations are so gigantic that private firms cannot compete on an equal footing, he said.

The combined amount of the nation’s postal savings has reached 230 trillion yen, nearly half of total bank accounts held by Japanese banks, while postal insurance stands at 120 trillion yen.

Kato said postal services remain financially feeble and need to expand.

Japan Post is legally obliged to provide nationwide services. Its mail delivery business liabilities exceeded its assets by 551.8 billion yen as of the end of March.

Japan Post covered losses in its mail and parcel delivery services with profits from its financial services business.

Kato said the two sectors’ cost structures need to be differentiated.

Kato believes Japan Post should be divided into four independent companies in the final privatization phase, but recognizes that the backlash from politically strong post office heads will make this difficult.

“Looking back on the past privatization process of the state-owned telephone company, there will likely be huge opposition from people who don’t want to lose their vested interests,” he said.

As a government panel member in the 1980s, Kato promoted the privatization of the state railway that became the Japan Railway carriers and the privatization of the telephone business that became Nippon Telegraph and Telephone Corp.

At the final stage of privatization, Japan Post’s giant postal savings should be divided into smaller regional entities that would extend loans to regional banks to kick-start regional economies, he said.

Japan Post’s delivery sector should expand into new businesses so it can start making a profit, he said.

In August, Lawson Inc. agreed to handle Japan Post’s parcels at its 7,850 outlets nationwide starting in mid-November, terminating Lawson’s current alliance with Yamato Transport Co.

Kato welcomed the move, saying Japan Post’s “delivery services would fall far behind Federal Express and other foreign companies” unless its parcel business is expanded.

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