Backsliding Japan Post broadens its horizons on all fronts

September 25th, 2012 by Philip Brasor & Masako Tsubuku

While you’re out, drop by the post office to pick up some stamps . . . and a mortgage

On Oct. 1, two divisions of the Nihon Yusei Group, in English known as Japan Post Holdings, or JP, will consolidate. If you were never aware that four separate companies make up the post office service — Yubin Kyoku, Nihon Yubin Jigyo, Yucho Ginko and Kampo Seimei — then you shouldn’t feel embarrassed. The vast majority of Japanese don’t know about it either, so the merger of the two postal-related services, Yubin Kyoku, which manages the post office system, and Nihon Yubin Jigyo, which manages mail delivery, into one entity called Nihon Yubin may hardly qualify as news to most people.

In fact, most people will wonder what actually distinguishes these two entities. Aren’t the business of managing post offices and the business of delivering mail part and parcel of the same general enterprise? Apparently not, though you’d have to actually work in either of those companies to understand why. Perhaps the best way to explain this conundrum is to look at one of the new services that will be offered after the consolidation takes place, something called tsucho azukari.

With this service, a person who has a savings account at Yucho Ginko (Japan Post Bank) can entrust (azukari) his or her passbook (tsucho) to a regular delivery person, who brings it to the bank so that an employee can carry out a desired transaction on the person’s behalf. Logic would say this sounds like a cooperative service between Nihon Yubin Jigyo, the delivery arm of JP, and Yucho Ginko, the banking arm of JP, but all Yucho Ginko are located in JP post offices, which means it’s really a cooperative service betweeh Nihon Yubin and Yubin Kyoku.

Tsucho azukari is actually a traditional service, especially for the elderly in rural areas where it is sometimes difficult to make it to the post office. But in the past, it was an informal service, simply something that a delivery person did for someone on his route as a personal favor. The new service will be implemented initially on a trial basis at only 52 of JP’s 24,000 post offices. The service itself is less important than what it represents, a reversal of the postal decentralization that former Prime Minister Junichiro Koizumi made his life’s work and which started in 2007.

Decentralization was a prelude to privatization, but the only real effect the public would have noticed  by the creation of the two postal-related services is that in larger post offices you go to one window to buy stamps (Yubin Kyoku) and another to send out packages (Nihon Yubin Jigyo). In smaller post offices this separation existed but was impractical due to personnel issues, so they were combined informally. What the consolidation does is make the combination formal, including the “transfer” of all those different employees, numbering 207,000 in all, to new positions.

But back to tsucho azukari. The reason this service is receiving more attention from the media than what it seems to deserve is that it legitimizes, however indirectly, the stronger connection between the postal and banking arms of JP. More than any other aspect of the old post office system it was banking and insurance (Kampo) that Koizumi wanted to privatize at the request of Japan’s finance industry. Commercial banks always resented the government-backed advantages of the postal savings and insurance systems, and the consolidation is seen to be the first step in reversing the privatization process, which is supposed to be fully realized in 2017 when all the Yucho Ginko stock held by JP, still a public company, will be released. Until then, Yucho Ginko will have to expand its business as much as possible in order to compete fully with commercial banks. For that reason, the government in April revised the Postal Privatization Act (Yusei Mineika-ho), and one of the new provisions allows Yucho Ginko to enter the financing field. Previously, JP could only make money by buying government bonds, which is becoming increasingly risky, but now its banking arm will be able to make loans, just like a regular bank.

This sounds like privatization is proceeding as promised, but the banking industry is quite upset. On Sept. 3, Yucho Ginko formally applied to the Internal Affairs and Communications Ministry and the Financial Services Agency to enter the housing loan business by April of next year, and eight private financial groups issued a protest, saying that Yucho Ginko’s “expansion of business as a public company” places the rest of the banking industry at an unfair disadvantage, since Yucho Ginko still has all that vast postal savings to back it up, some ¥175 trillion, which, despite some shrinkage in recent years, still represents three times the resources held by Tokyo Mitsubishi UFJ Group, Japan’s biggest commercial bank. According to the Asahi Shimbun, the industry believes that once Yucho Ginko is permitted to lend money, the government will never “allow them to stop growing” because the government still has an investment in JP Holdings. That means the government will have less of an incentive to allow Yucho Ginko to become fully private by 2017.

The move is especially troubling to regional banks and credit unions since, despite the shrinking housing market, housing accounts for 25 percent of all loan business in Japan, and with interest rates already extremely low, Yucho Ginko’s participation will make competition even fiercer, forcing some smaller banks out of business. The president of Mizuho Bank told the Asahi that it appears the government is reneging on its pledge to get out of enterprises “best left to the private sector.”

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One Response

  1. “allow them to stop growing”

    if Yucho Ginko (Yuko?) does grow it will have to come out of the private banks because Japan’s demographics control all now.

    There were ~30M people aged 20-39 in 2012. This number was in the ~35M range from the latter half of the Showa era through 2006. In 2022 this population will be ~25M and in 2032 (down ~15%) it will be down to 23M (down ~25% from now).

    Apologies for spamming your comment section with this topic but I do find it more than fascinating in that every discussion about Japan has to incorporate this change in reality.

    It’s just as if the sun was rising in the west now.

    Also:

    “As of March 31 last year [2009], 74 per cent of the postal bank and postal insurer’s combined assets of Y303 trillion (that’s right, $3480 billion) were held in Japan government bonds (JGBs) and another 4 per cent in local government bonds.”

    ~80% of Japan’s postal savings are in government debt issues. Will Japan’s savers get their money via BOJ printing, MOF taxing, borrowing from China, or some combination of the three?

    Or not at all? I’m still trying to figure out how it was fair for Japan’s baby boom to be so undertaxed 1995-now, allowing them to “save” for retirement, only to stick the bill to the next generation(s) to pay off.

    What a mess. If I were King, I’d rather have the US’s problems than Japan’s to solve, but absent autocratic powers, I think Japan’s are less intractable. Maybe.

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