Saturday, September 29, 2007 0 comments ++[ CLICK TO COMMENT ]++

Japan Post Privatization

Japan is set to privatize its mammoth postal service, Japan Post, on Monday. For those not familiar with Japan or Japan Post, this may seem innocuous and just another step towards privatization of government branches. But Japan Post is a bit different from any other government entity that has been privatized by any government elsewhere. Japan Post isn't a postal service; it's a massive bank. In fact, after privatization, it will become the largest bank by deposits:

The entity privatized on Monday [with $3.03 trillion] will eclipse Citigroup, with assets of $2.22 trillion, as the world's largest commercial bank. Third will be Japan's Mitsubishi UFJ Financial Group, with $1.67 trillion.


The privatization will be kind of slow with the final spin-off not occurring for 10 years:

Under the 10-year privatization plan, Japan Post will on Monday be broken into four separate businesses, initially held under a government-controlled holding company: An insurance company, savings bank, mail courier and post office management company.


This privatization will probably have a bigger impact on the economics of Japan over the next 15 years than any other particular government policy. Due to the massive size of Japan Post, banks in Japan aren't as efficient as they can be. Furthermore, citizens have been misallocating their savings in my opinion.

But Koizumi [previous Prime Minister] argued that the government guarantee on postal savings had encouraged generations of Japanese to park their money in the low-interest accounts, creating a stagnant pool of savings and diverting funds away from more productive investments like stocks and mutual funds.

Experts have also said that postal funds have been used to finance pointless government-backed public works -- bridges to nowhere, redundant roads -- and to purchase government bonds, contributing to a public debt now over 160 percent of Japan's gross domestic product.


I think this privatization will be a huge positive for Japan going forward. It's not going to be a major sudden change, and, instead, it will be a gradual change in the background. Hopefully this results in greater transparency and minimization of government spending. As mentioned in the quote above, Japan's government debt is an astronomical 160% of GDP (US debt to GDP is around 60%).

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