Tag: Japan

The break-up of Japan Post creates the world’s largest bank

Japan’s financial services industry has entered a new era with the reorganisation of Japan Post on October 1st. The move has created the world’s largest bank, Japan Post Bank. This has the potential to invigorate Japan’s financial sector by encouraging more efficient capital allocation and by exposing management of the country’s vast pool of under-utilised postal savings to greater market forces. However, there is also considerable uncertainty as to whether the net effect of the restructuring will be to promote financial-sector competition or to stifle it. In addition, the diversification of investments implied by the restructuring could increase financial risks as well as lead to turbulence in the Japanese government bond (JGB) market.

The restructuring of Japan Post is the first step in a ten-year privatisation programme. In terms of “privatisation”, no sale of government assets has yet occurred. As of October 1st, the former Japan Post has simply been spun off into four commercial entities under a 100% government-owned holding company. The division of the four new businesses reflects the post office’s previous main areas of activity. Thus, there is a bank (Japan Post Bank), an insurance company (Japan Post Insurance), a postal delivery service (Japan Post Service) and a branch-management business (Japan Post Network). The latter of these is responsible for running the nation’s 24,000 post offices.

The privatisation plan involves the holding company, Japan Post Holdings, selling its entire stakes in the banking and insurance businesses by 2017, with some of that divestment expected to take place via stockmarket listings as early as 2009 or 2010. The holding company will keep control of the mail delivery and branch-management businesses, although it will gradually sell up to around two-thirds of its own shares.

The following is the history of Japan’s postal services and key events related to the privatization of the services.

1871 — Japan’s modern post office system, modeled on the one in Britain, starts between Tokyo and Osaka.

1872 — Mail delivery becomes available throughout the nation.

1875 — The postal savings business starts

1877 — Japan joins the Universal Postal Union, an international network of postal services.

1900 — The Mail Law is enacted.

1916 — The postal life insurance business starts.

1949 — The Posts and Telecommunications Ministry is established.

1973 — The loan service begins for postal savings account holders.

1992 — Junichiro Koizumi becomes the posts and telecommunications minister.

1997 — Privatization of postal savings and insurance services is discussed as part of reform initiative under Prime Minister Ryutaro Hashimoto.

2001 — The Ministry of Internal Affairs and Communications takes over postal services under the reorganization of government ministries.

2001 — Koizumi takes office as prime minister.

2003 — Japan Post starts operations as a state-backed postal services company while private-sector firms are allowed to launch the mail delivery business.

2004 — Koizumi’s Cabinet adopts a postal privatization plan.

2005 — The Diet rejects the privatization bill, prompting Koizumi to call a general election.

2005 — Koizumi’s Liberal Democratic Party scores a landslide victory in the election and the Diet passes the bill.

Oct. 1, 2007 — The government begins the 10-year process of Japan Post privatization.