Japan Approves Postal Privatization

Offering financial accounts as well as stamps and envelopes, the postal service here is essentially the world's largest bank, with $3 trillion in deposits and 25,000 branches. The vote seals a plan to transfer the institution into private hands over the next 12 years.

Koizumi has made postal privatization the cornerstone of an effort to streamline the Japanese economy by downsizing government and encouraging private enterprise and investment.

Rejection of postal bills by the upper house in August led him to dissolve parliament and call new elections, which his pro-reform candidates won in a landslide. The new mandate opened the way for easy upper house approval of the bills this time around, by a vote of 134 to 100. The lower house passed the measures last week.

"This is a political miracle," Koizumi told reporters after the vote. "Once I was thrown down to the bottom of a valley, but the people have pulled me up."

Koizumi and his supporters, as well as many leading economists, called the bills' passage a major breakthrough in efforts to put Japan on track for sustainable, long-term economic recovery after a decade and a half in the doldrums.

The government has traditionally used funds that the post office collects to finance public works projects, many of them politically motivated and serving little apparent social need. Koizumi contends that privatization will divert the huge pool of money into commercial capital markets and assure it is spent more efficiently, giving a boost to a troubled economy.

But critics say the government has yet to develop a clear strategy for how to move those funds into the general economy. The challenge is to get depositors to begin shifting their money out of postal accounts -- where much of it ends up invested in government bonds. Once in private hands, the new owners will theoretically begin offering depositors other investment options besides bonds that will have a more direct impact on the economy.

Analysts also say Koizumi and his successors will have to make good on the prime minister's call to trim the government workforce by 20 percent over 10 years and further overhaul social security and public works spending.

"It is still going to take an enormous amount of time to actually privatize the postal system and find ways to get deposits injected into the economy," said Tetsufumi Yamakawa of the American investment bank Goldman Sachs.

In Japan, the post office has long been the place where play-it-safe citizens keep their life savings. About 85 percent of households have postal savings accounts. The post office is also a major broker of life insurance, serving more than 60 percent of households.

The bills call for the agency to be split into four entities in 2007 under a new holding company. Private ownership would bring significant reductions in what is widely seen as a bloated payroll.

Stung by the agency's image as a public dinosaur and spurred on by what many analysts saw as inevitable privatization, Japan Post has taken steps recently to modernize its operations.

The organization is reportedly in talks to partner with major European courier, TNT Post Group of the Netherlands, as well as Japan's Nippon Express Co. in the hopes of tapping into the lucrative package delivery market. Also, the post office for the first time is offering its customers stock market investment trusts managed by private brokerage houses.