The Japanese government has decided to revise the
proposed reforms of the postal system …
Shaw Capital Management Korea: One of the world’s largest financial institutions
The government now proposes to absorb Japan Post
Network Co. and Japan Post Service Co. into Japan Post
Holdings on October 1, 2011.
The newly consolidated holding group will continue
to have two financial units, turning the system into a
three-company structure, from the current five
companies (currently, the system consists of Japan Post
Holdings Co. and four units — a postal service, a savings
bank, a life insurance company and a retailer for the
services of the other three).
Under the new plan, the current Democratic Party of
Japan-led government (DPJ) also plans to double the
maximum amount of deposits that Japan Post’s banking
unit can accept per person from the current ¥10 million
to ¥20 million and to raise postal insurance coverage
from the current ¥13 million to ¥25 million.
The government is also likely to hold on to more than
a third of the postal group’s shares in a turnaround
from full privatization — this will enable the
government to veto any major changes in the firm.
The bill with these latest changes, is expected to be
submitted to the Diet.
“We made the bill’s outline with the aim of ensuring
that Japan Post will sufficiently offer universal services
throughout the nation”, Shizuka Kamei, Japan’s Finance
Minister, told reporters at a press conference.
The Japan Post group provides insurance services
through its 24,000 post offices across the nation
especially in rural areas where private banks have little
or no presence or have trouble gaining the trust of
locals, and holds savings accounts for about 57 million
people.
The group as a whole employs about 226,000 people
and, with assets of more than ¥300,000 billion, sits at
the heart of a system of public institutions that own
almost half of Japan’s national debt.
Moreover, it helps to keep the government’s cost of
borrowing low even as its gross debt closes in on 200%
of annual output.
Japan Post was nominally privatised in 2003; with the
reforms spearheaded by former Prime Minister
Junichiro Koizumi, the champion of structural reforms
for a more market-oriented economy.
Under the previous plan, Japan Post’s financial units
were to be fully released from government control by
2017. With these latest moves, Prime Minister Yukio
Hatoyama’s government, which took power last
September from the long-ruling Liberal Democratic
Party (LDP), is halting the sale of its shares to maintain
control over the company’s plentiful assets, long a
source of public financing.
Behind the proposal is the government need for a
growth strategy.
In the fiscal 2010 budget, general-account expenditures
stand at a record ¥92 trillion, so politicians are pushing
for postal savings to be used to finance their policies.
But these proposed changes to postal reform raise
numerous concerns.
First of all, if the massive postal group attracts even
more money with the lifting of the savings cap, it will
hamper private-sector financial businesses and spark
an outflow of funds from private banks.
Tadashi Ogawa, chairman of the Regional Banks
Association, says raising the deposit cap is “truly
regrettable” because small regional banks in particular
will be affected in times of financial crisis because
depositors may flee to Japan Post Bank.
Moreover, the two subsidiaries — the postal bank and
insurance company — are likely to be permitted
substantial operational freedom.
This would, for example, enable them to offer housing
loans or sell cancer insurance policies.
The uneven public-private playing field, however,
would no longer be just a domestic problem. The US
and Europe have already expressed concerns about
these developments.
Also, creating an even bigger public financial entity
will loosen the government’s fiscal discipline through
increased purchases of government bonds (JGBs) and
accelerate wasteful spending on public works projects.
The system of public institutions buying JGBs has been
central to the economic status quo that has kept Japan
afloat since its stock market plunged in 1990.
“The revision will be a turning point for the worse”,
says Naoko Nemoto, a banking analyst at rating agency
Standard & Poor’s in Japan.
The deep misgivings over public spending originate
from the way postal savings were used for years.
The money had long been used to fund unnecessary
public projects such as highways, bridges and airports
in the middle of nowhere via the Finance Ministry’s
fiscal investment and loan program, which was
reformed in 2001.
These expenditures were not only inefficient but also
lacked transparency because they were made through
government-affiliated organisations.
Creating an even bigger public financial entity is also
risky because it will distort the entire interest-rate
structure of financial markets, where loans with higher
risks should reflect higher returns.
If a public institution extends loans with below-market
interest rates to support certain industries, we are back
to the government ‘picking winners’ or worse just
backing losers.
In other words, this is yet another example of how the
DPJ is mis-managing the Japanese economy, pandering
to voters and reversing necessary reforms passed by
the Koizumi government.
Shaw Capital Management Korea: World Trade
The fall-out from the failure of the Doha Round of trade
liberalisation measures, and the impact of the recession,
are continuing to increase the threat of further
protectionist restrictions on world trading activities.
The US Commerce Department has recently launched
an investigation into whether certain forms of
aluminium made in China is being dumped, or sold at
less than its fair value, in the US; and the Chinese
Commerce Ministry has responded by launching its
own anti-dumping enquires into imports of
caprolactam, a widely-used synthetic polymer, from
both the US and Europe, and has finalised the ruling
on some nylon imports.
These developments are not likely to lead to early and
dramatic changes; but they do provide a further
illustration of the dangers if the global economic
recovery does not accelerate and lead to a relaxation
of the pressures in the trading system.
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