Sunday, March 28, 2010

Japan's Postal Privatization Debate

WSJ: Japan Unveils Postal Reform Plan; Officials Spar Over How Far to Privatize Japan Post; Japan Shifts Course in Halting Postal Sale
Reuters: Japan scales back Japan Post privatization
JapanTimes: Kamei pitches postal privatization retreat; All eyes on Japan Post as privatization begins

Japan Post Holdings Co. does not just deliver mails. It is also the world's largest financial institution in terms of assets ($3.3 trillion), providing banking and insurance services. In 2007, Japan's former administration led by Junichiro Koizumi launched a 10-year plan to privatize this government-owned institution. By reducing government shares and support, it was expected that funds would be allocated more efficiently to productive users and other private banks would not be unfairly disadvantaged. Last week, however, reversing Mr. Koizumi's effort, the current government proposed that it should hold more shares of Japan Post than originally planned.

Banking and postal services Minister, Shizuka Kamei, said that the government needs to continue to support Japan Post in order to improve economies in rural areas. According to Mr. Kamei, the government plans to maintain more than one-third of Japan Post shares in which case the government can exercise veto power. Also, the government plans to expand Japan Post's business by increasing the ceilings on the amount of its deposits and insurance payment by June. Currently, a customer can deposit money in postal savings accounts up to 10 million yen ($108,070), but this limit will be raised to 20 million yen. In the case of insurance payments, the limit will increase up to 25 million yen from 13 million yen.

Many including private banks and other cabinet members strongly criticized the reform plan, arguing that it would hinder healthy competition. They complain that the money deposited in private banks will likely to shift to Japan Post as customers tend to view the government-owned bank as a safer place to save money. They also worry that with expanding deposits, Japan Post may consider providing additional financial services such as providing mortgage loans. Japan Post currently does not provide loans and 80 percent of its assets are invested in the government bonds.

Prime Minister Yukio Hatoyama said he intended to have a cabinet meeting next week to discuss the new reform plans and finalize it by March 30th. However, according to Japan Times, the basic features of the plan are not likely to be changed.

In 2007, under the previous privatization plan outlined by the former administration, Japan Post was split into private subsidiaries (Japan Post Bank Co., Japan Post Insurance Co., Japan Post Services Co., and Japan Post Network Co.) under Japan Post Holdings Co. Among them, banking and insurance subsidiaries were supposed to go public in 2010 and be span off by 2017. Also, the government was supposed to decrease its shares to about 33 percent.

Discussion Questions:
What are the positive and negative aspects of government support for Japan Post? How should the Japanese government proceed its postal reform?