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subject: Shaw Capital Management Korea: Postal Reform Rollback [print this page]

The Japanese government has decided to revise the

proposed reforms of the postal system

Shaw Capital Management Korea: One of the worlds 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 Posts 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 groups 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 bills outline with the aim of ensuring

that Japan Post will sufficiently offer universal services

throughout the nation, Shizuka Kamei, Japans 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 Japans national debt.

Moreover, it helps to keep the governments 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 Posts financial units

were to be fully released from government control by

2017. With these latest moves, Prime Minister Yukio

Hatoyamas 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 companys 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 governments 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 & Poors 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 Ministrys

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 organizations.

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.

by: shawcapital

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