Japan unleashes new colossus with postal privatisation

TOKYO – The privatisation of Japan’s post office, which doubles as the world’s biggest savings bank, was hailed around the globe as a watershed free-market reform that would streamline the world’s No.2 economy.

But just months before the October kick-off date, a darker prospect looms over what will unseat Citigroup Inc. as the world’s biggest financial institution.Far from encouraging open competition, some are warning that the government-nurtured colossus could leverage its size to stamp out rivals, foreign and domestic.Washington is pressuring Tokyo to ensure that won’t happen, and Japan is promising strict safeguards.Yet uncertainties about how the 10-year privatisation plan will unfold are fuelling fears of a new US-Japan trade row.”We are monitoring it very closely,” US Trade Representative Susan Schwab told US Congress last month.Japan’s postal privatisation “is fine in theory, unless it turns out they are creating an unfair advantage, an unlevel playing field,” Schwab warned.”We will, if necessary, seek litigation.”Japan Post does more than sell stamps and deliver letters.It also runs a postal savings bank with 500 million accounts and some 4 000 branch offices nationwide.Its ubiquitous post offices effectively act as sales agents for insurance and investment products as well as stamps.Japan Post started selling investment trusts at just 551 post offices in 2005, but had expanded that to 1 155 branches by last October.For millions of Japanese, the post office is their only bank.The service has become a symbol of the government’s benevolent patriarchal side and is especially popular in rural areas shunned as unprofitable by commercial banks.Sitting on assets of US$1.96 trillion, Japan Post secures about 28 percent of Japan’s household savings and is widely billed the world’s largest bank.Privatising the behemoth was the centrepiece reform of former Prime Minister Junichiro Koizumi, who pushed it through parliament in 2005.The first phase begins October 1, with Japan Post being broken into four separate businesses – an insurance company, savings bank, mail courier and post office management company.Initially held under a holding company, they will be made independent by 2017.Economists applauded the move as encouraging Japanese – long used to stashing cash in the bank for miserable interest rates – to turn to more productive investments such as stocks.It would fuel competition and be a boon to foreign banks and investment companies hoping to scoop up new clients.The huge pot of savings is up for grabs at a time of booming demand for higher returns.For decades, Japanese looked at stock trading as a form of gambling, but more are turning to stocks and mutual funds.That means big money for foreign banks and insurance companies.Fireworks could begin next month, when Japan Post releases its first detailed business plan.Nampa-APas the world’s biggest financial institution.Far from encouraging open competition, some are warning that the government-nurtured colossus could leverage its size to stamp out rivals, foreign and domestic.Washington is pressuring Tokyo to ensure that won’t happen, and Japan is promising strict safeguards.Yet uncertainties about how the 10-year privatisation plan will unfold are fuelling fears of a new US-Japan trade row.”We are monitoring it very closely,” US Trade Representative Susan Schwab told US Congress last month.Japan’s postal privatisation “is fine in theory, unless it turns out they are creating an unfair advantage, an unlevel playing field,” Schwab warned.”We will, if necessary, seek litigation.”Japan Post does more than sell stamps and deliver letters.It also runs a postal savings bank with 500 million accounts and some 4 000 branch offices nationwide.Its ubiquitous post offices effectively act as sales agents for insurance and investment products as well as stamps.Japan Post started selling investment trusts at just 551 post offices in 2005, but had expanded that to 1 155 branches by last October.For millions of Japanese, the post office is their only bank.The service has become a symbol of the government’s benevolent patriarchal side and is especially popular in rural areas shunned as unprofitable by commercial banks.Sitting on assets of US$1.96 trillion, Japan Post secures about 28 percent of Japan’s household savings and is widely billed the world’s largest bank.Privatising the behemoth was the centrepiece reform of former Prime Minister Junichiro Koizumi, who pushed it through parliament in 2005.The first phase begins October 1, with Japan Post being broken into four separate businesses – an insurance company, savings bank, mail courier and post office management company.Initially held under a holding company, they will be made independent by 2017.Economists applauded the move as encouraging Japanese – long used to stashing cash in the bank for miserable interest rates – to turn to more productive investments such as stocks.It would fuel competition and be a boon to foreign banks and investment companies hoping to scoop up new clients.The huge pot of savings is up for grabs at a time of booming demand for higher returns.For decades, Japanese looked at stock trading as a form of gambling, but more are turning to stocks and mutual funds.That means big money for foreign banks and insurance companies.Fireworks could begin next month, when Japan Post releases its first detailed business plan.Nampa-AP