Financial behemoth has huge footprint


The postal system has been on the path toward privatization, but a recent Cabinet decision to double the ceiling on postal savings accounts and maintain a large government share in the postal group has turned the clock back on reform.

Here are some questions and answers regarding the largest financial institution in Japan and, in terms of deposits, the biggest bank in the world:

What is the current situation?

The Japan Post group holds savings accounts for about 57 million people — about half the country’s population — and provides insurance services through its 24,000 post offices across the nation. The group as a whole employs about 226,000 people.

Its four units — post office operator Japan Post Network Co., delivery service operator Japan Post Service Co., Japan Post Bank Co. and Japan Post Insurance Co. — are overseen by Japan Post Holdings Co.

The current setup was formed in 2007 after the old postal ministry was reformed and became Japan Post, a public corporation, in 2003 under the privatization plan initiated by reform-minded Prime Minister Junichiro Koizumi.

Under his plan, Japan Post Holdings was to sell all of its stock in the postal bank and insurance units by the end of September 2017.

What is the gist of the recent change to the reform plan?

The Cabinet on March 30, reflecting a proposal by postal reform minister Shizuka Kamei, a key foe of Koizumi’s reforms, decided the government will raise the upper limit on postal savings per person to ¥20 million from the current ¥10 million, and on postal insurance to ¥25 million from ¥13 million. It also said the government will maintain its holdings of more than one-third of the group’s shares.

The government has not yet made clear whether other conditions will be changed, including if it will review the number of the group’s units or if it will impose the consumption tax on Japan Post’s operations.

If the cap on savings is doubled to ¥20 million, will the entire amount be guaranteed by the government?

The government has yet to say. The current guarantee on postal savings is the same as that on commercial bank deposits — ¥10 million. However, speculation is rife that all ¥20 million will be guaranteed because, based on the latest plan, the government will hold more than one-third of Japan’s Post’s shares.

To ease the expected criticism from the private sector, Kamei has said in recent weeks that the government may consider raising the guaranteed amount on commercial bank deposits.

How did the postal group manage its funds in the past?

All of the money in postal savings accounts was pooled at the Finance Ministry and used under the “zaito” fiscal investment and loan programs to finance public works.

But because the gargantuan amount of money was often spent on wasteful projects, such as building unneeded highways, bridges and airports, the system ended in 2001. The postal group has since invested in financial markets — mostly in Japanese government bonds.

Why was Koizumi so keen on postal reform?

The biggest reason is the huge amount of money in the group’s two financial units and the inefficient ways they invest it.

In 2007, when the 10-year road map for privatization was started, Japan Post Bank and Japan Post Insurance had savings and insurance policies worth ¥335 trillion.

About 90 percent of the money was invested in central and local government bonds and extended to government projects as loans, which academics criticized as unnecessary public spending. These expenditures were not only inefficient but also lacked transparency because they were made through government-affiliated organizations.

This kind of investment also led to lower returns to the holders of the accounts and policies than that of many other financial products.

Bankers and insurers have also criticized Japan Post as a behemoth strangling the private sector. More money is in postal savings than in any other Japanese bank’s outstanding accounts, and postal insurance has more policies than any private insurer.

Another reason experts say the postal group needs to be reformed is because postal delivery services don’t turn a profit.

According to a report in 2007 by the internal affairs ministry, which now supervises postal services, about 70 percent of profits earned by Japan Post Service came from services related to the group’s two financial units. Experts say the postal service unit has to find ways to stand on its own.

What has happened since the 10-year road map kicked off?

To make its business more efficient, for example, Japan Post has been closing down unprofitable post offices in rural areas. As a result, some people have lost their only access to a financial institution, which is why Kamei is trying to put more government control back into the group and provide universal postal services across the nation.

The government hopes to maintain the nationwide post office network so people in rural areas can still benefit from postal services, banking in particular.