Quick - what is the largest private financial institution in the world?

Almost anyone would get this one wrong if asked on the street, but as you've probably guessed from the title of this node, it's Japan Post, the official name of the Japanese postal service, currently undergoing a decades-long process of gradual privatization.

And when we say the largest financial institution in the world, we mean by a long shot. Administering 24,773 post office branches throughout the nation, Japan Post is not only responsible for every piece of mail in Japan, but also administers the Postal Savings System and Postal Life Insurance. More Japanese save money with the Postal Savings System than with any other single savings institution, and more people rely on Postal Life Insurance than on any other single life insurance provider. Respectively, the two services account for roughly 30 percent of total savings and 30 percent of total life insurance equity in Japan. In total, Japan Post holds assets of approximately $3.6 trillion. This is orders of magnitude larger than the world's largest private banks, and equal to approximately 80% of Japan's GDP. Full privatization of an entity this size threatens to have profound implications of the financial system, not only in Japan, but worldwide.

Japan Post nominally became a private corporation on April 2, 2003 in accordance with four laws promulgated on July 31, 2002. But the true privatization is set to begin on April 2, 2007, to be followed by a 10-year "transition period" in which full privatization is achieved. Privatization of the postal service has long been a dream of current prime minister Junichiro Koizumi, but it remains to be seen what the exact nature of this privatization will be, or even, some wonder, if the Japanese postal system will truly change at all, or if this will be yet another example of the Japanese renaming things while leaving the fundamental status quo intact.

What is known, is that privatization of the Japanese postal service has many entrenched opponents, who have long opposed, and will continue to oppose, any moves toward real privatization. The Japanese public, for example, is concerned that under a private, competition based model, remote areas of Japan will no longer be served, smaller branches will close, and mail rates will differ depending on profitability. So far, the Japanese government has promised to mandate a universal-service requirement, but how long that would last is up in the air.

Financial corporations, both in Japan and around the world, are also opposed to the privatization of an institution that accounts for a third of the banking services in the world's second-largest economy. Such a massive corporation, the argue, would have huge, and unfair, advantages if allowed to compete freely in the open market. Currently, there are tight restrictions on which businesses Japan Post can and can't involve itself with - for example, Japan Post is not allowed to involve itself with loans to private individuals - but presumably these restrictions would be removed during the privatization process. Moreover, as a public institution, Japan Post was exempt from certain controls on its operation - for example, it currently does not have to take out insurance on deposits.

At the very minimum, future competitors are demanding that these protections be removed as soon as possible, and are worried that some of them may be allowed to continue in a concession in exchange for the continuation of universal service that the public demands. Most private corporations favor breaking up Japan Post into smaller corporations that separately handle its various businesses, but this would be hard to do given the current high level of integration of the different services, and thus far has not been seriously considered by the Japanese government.

Finally, there is Japan's mighty construction lobby, which earns its bread by building useless but massively expensive bridges nobody uses, airports nobody needs, and roads that lead to nowhere in cahoots with the entrenched Japanese bureaucracy. This money to undertake these massive unneeded public works projects derives largely from interest free "loans" from the postal savings pool, which is essentially a form of stealing from the Japanese people, who earn no interest to speak of on their savings. Suffice to say, the construction lobby is opposed to any reforms that will cut-off its access to this free money, and given its power in Japanese society, it would be difficult to imagine a reform of the postal service that would truly cut off this access (although again, what is said on the surface is a different matter). It does call into question, morever, how real the "privatization" would be if a supposedly private corporation continued to fund unrelated government boondoggles.

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