Koizumi to gear up postal reform, but rough road lies ahead

Prime Minister Junichiro Koizumi is poised to accelerate planned privatization of the state-run Japan Post by appointing right-hand man Heizo Takenaka as postal reform minister in Monday's Cabinet reshuffle.

Postal privatization is the centerpiece of Koizumi's structural reforms and Takenaka has taken the lead in drawing up the privatization scheme.

The roster of Koizumi's Cabinet reshuffle including the appointment of Takenaka for the portfolio of postal reform minister showed the premier's unswerving resolve to push ahead with the postal reform.

Koizumi had said he would refrain from selecting anyone who would not cooperate over postal reform, and all members of his new Cabinet expressed support for Koizumi's privatization plan for Japan Post at news conferences after being appointed.

While it appears that all the Cabinet members passed the test, the degree of support apparently varies among individual Cabinet members.

Based on a blueprint for postal reform drawn up by Takenaka, the government will devise relevant bills with the aim at submitting them to the next ordinary Diet session to be convened in January.

But the Koizumi administration is likely to face tough going from now because many lawmakers in his ruling Liberal Democratic Party are opposed to the privatization scheme and may try to thwart the government's efforts to get the bills enacted by the Diet.

According to the blueprint endorsed at a Cabinet meeting on Sept. 10, Japan Post will be divided into four companies in April 2007, being placed under a holding company.

The four entities will inherit postal services currently run by Japan Post — mail delivery, postal savings, "kampo" life insurance and the management of the network of over-the-counter services at post offices.

However, the government is now effectively waiting for a decision by a panel of experts who will study the feasibility of the schedule from the aspect of computer networks and make a recommendation by the end of this year.

The government's Council on Economic and Fiscal Policy agreed to set up the panel as Japan Post President Masaharu Ikuta reiterated his opposition to the privatization scheme, saying it will take at least three years to establish a computer network for the four entities.

The government and opponents may be engaged into a tug-of-war over who will become members of the panel of experts.

Under the government blueprint, entities to be in charge of postal savings and life insurance will be allowed to enter new business areas such as mortgages, but it does not stipulate when they can do so.

If the two companies launch such new businesses while they are placed under a holding company, this will draw criticism from private-sector financial institutions as the holding company will be under strong government influence.

The government will unload some of its shares in the holding firm over a 10-year period from April 2007 but will continue to have a more than one-third stake in the company even after 2017.

The blueprint also says the postal savings and postal life insurance entities will maintain, for the time being, the current 10 million yen ceiling that each depositor is allowed to save at post offices.

But it remains undecided how the ceiling will be gradually phased out.

The Koizumi administration also faces a number of contentious economic issues. One concerns fiscal restructuring.

With the accumulative long-term debts held by the central and local governments totaling 729 trillion yen as of June 30, it is now an urgent task for the government to restore its fiscal health.

The government plans to maintain a policy of slashing expenditures while exploring ways to realize tax hikes to meet growing social security expenses and debt-servicing costs.

On tax reforms, the government has already decided to transfer tax revenue sources of 3 trillion yen from the central government to localities, but the specifics have yet to be decided.

The proposed transfer of tax revenue sources is one of three-part tax reforms — slashing subsidies, cutting tax grants from the central government to local governments and empowering the localities to collect taxes in compensation.

On the finance front, new Financial Services Minister Tatsuya Ito will face the major task of smoothly introducing the complete abolition of the 10 million yen government refund guarantee per depositor in April 2005.

Regarding bad loans at major banks, the light at the end of the tunnel is already in sight, and the Financial Services Agency will focus more on ensuring stability of local financial systems with infusion of public funds.

Whether ailing retail giant Daiei Inc. will seek rehabilitation under the state-backed Industrial Revitalization Corp. of Japan will also continue to draw public attention.

Major creditor banks and the FSA want Daiei to use the IRCJ for rehabilitation, but the supermarket chain operator is adamant that it does not want government help.

On trade, Japan is reaching a crucial stage in bilateral negotiations for a free trade agreement with Malaysia, the Philippines and Thailand as Tokyo aims at reaching basic agreements over FTAs with the three countries by the end of this year.

But it is unclear whether agreements will be hammered out as scheduled because gaps remain between Japan and these countries over a number of contentious issues, including the acceptance of workers such as nurses and cooks from the three countries and scrapping tariffs on imports of farm products such as bananas.

Japan also aims at reaching a basic accord for an FTA with South Korea by the end of 2005 and will start negotiations for a free trade pact with the Association of the Southeast Asian Countries next year.