JIN-427 -- Trouble in the post

The 'JIN' Japan Inc Newsletter
A weekly opinion piece on social, economic and political trends
in Japan.
Issue No. 427 Wednesday August 15, 2007 TOKYO

Featuring our Real Estate Special, Web 2.0 Marketing and more!

Trouble in the post

The results of the Upper House election have dealt not only
Abe a blow in the face, but may also have serious consequences
on the progress of reform in Japan. Speaking at the Foreign
Correspondent’s Club, academic and political commentator
Professor Gerald Curtis foretold doom and gloom for the near
term concerning Japanese politics. Crediting Ozawa’s ‘brilliant
election strategy’ Curtis sees the result as more of a vote
against the current administration than an endorsement of the
DPJ. He can’t see ‘any good scenario’ for the immediate future
and is unequivocal about what he thinks Abe should do: ‘he lost,
he should leave.’

But what does this mean for the course of reform in Japan? For
one, as Prof Curtis made clear, the reforms of the late 1990s and
early twentieth century were never unanimously accepted and have
alienated many rural citizens. Why then didn’t they express their
dissatisfaction through the polls before? ‘When the Koizumi
magic is taken away, there is a lot of unhappiness with his
policies.’ Abe simply doesn’t appear to have the political nous
or charisma to carry through what are in essence fundamental
changes to Japan’s institutional infrastructure. I asked
Professor Curtis if he thought then that the DPJ strength in the
Diet would result in a backtracking on reform to which he
responded that rather, we may see the government ‘doing
nothing—which is in a sense backtracking.’

And to do nothing may actually characterize many of the DPJ’s
policies. Last week they announced that together with the
People’s New Party that would be submitting a bill to freeze
privatization of the postal service, proabably for one year,
striking at the soul of Koizumi’s crusade. In 2005 it was on
this issue that Koizumi staked his premiership and in a daring
political gambit ended up being returned with a triumphant
landslide. According to the analyst Praticia L Maclachan, writing
in the ‘Social Science Japan Journal’ last year, privatization of
the postal service was for Koizumi ‘both source and symbol of
all that is wrong with political economy—of bureaucratic
mismanagement, political and bureaucratic collusion with
powerful vested interests and the inefficient allocation of
financial resources.’ She visualizes the attempt to privatize
Japan Post as ‘storming the castle’ of the old political
establishment. And Japan Post is indeed a key institution in
Japan’s society, politics and economy. With over 3 trillion US
dollars and an estimated 400,000 employees it is also an
organization of more than purely symbolic significance.

The privatization of Japan Post, as pushed through by Koizumi,
was due to start in October this year to be completed in 2017.
The plan is to split the institution into four separate parts:
insurance, postal service, personal savings and mail courier.
While foreign businesses in general welcomed the reform of such
a protected financial institution, foreign businesses in Japan,
particularly those in the financial sector voiced concerns that
although privatized, enjoying very close personal and
institutional links with the bureaucracy, Japan Post may receive
preferential treatment that would be anti-competitive. Back in
2005 Debbie Howard, President of the American Chamber of
Commerce at the time vocalized worries succinctly when she
stated: ‘Japan Post’s activities should be clearly and measurably
restricted to ensure that it does not abuse its market power and
does not expand its business into new areas until a level playing
field has been established.’


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One of those ‘new areas’ of concern related to speculation that
Japan Post would expand into investment trusts. However, aware
of the danger in alienating foreign financial institutions, Japan
Post appeared to be trying at least to include some foreign
firms. Writing in the Financial Times in April,
David Turner reported an interview with Japan Post’s head of
investment trusts, Yochiro Yoshitake, in which he stated
that he ‘might call on the expertise of overseas managers
as the organisation broadened its range of investment trusts to
include more active strategies.’
Both Goldman Sachs and Boston-based Fidelity have entered into
agreements with Japan Post in relation to its investment trusts
although Merrill Lynch apparently had trouble getting involved.

But what a ‘freeze’ on the process would mean is a probable
turning back of the clock to before 2005 where reformers were
not arguing about the for the privatization would take, but about
whether it would happen at all. It may also impact the reform
process more generally which would upset foreign banks who were
hoping expand their range of services in Japan. However, before
becoming alarmist it is important to understand the reasons
behind the DPJ’s bill. Although this may be a play to appeal to
the ‘postal rebels’ in the LDP and cause trouble for Abe, as well
as an old guard attempt to stop the privatization in its tracks,
it is also a part of the DPJ rural vote winning tactic. Many rural
aras, far from worrying about the financial sector, were against
the privatization because of the simple reason that it would
probably endanger their local post office that a private company
would would deem as a drain on resources without making citizens
local conveniences their main priority. This means the bill
targets the postal wing of the operations more than the banking

It is unlikely that the bill will go through, it being most
probably a post-election headline grabber and to kick Abe when
he’s down. Nevertheless in the current political climate it is as
Professor Curtis emphasised, somewhat difficult to optimistic.

By Peter Harris
Chief Editor, J@pan Inc magazine

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