View from Tokyo: Postal banking as battleground

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The Independent Online
THE POWER of Japan's kanryo, or bureaucracy, is legendary. Bureaucrats hidden behind the anonymity of ministry buildings in Tokyo's Kasumigaseki district have made virtually all the important decisions that have shaped Japan's economic development since the war. These blue-suited ministry men have always regarded the nation's future as far too important to entrust to corrupt, back-stabbing politicians. Their contempt for their elected parliamentarians is barely concealed at the best of times.

But while conspiracy theorists like to point to the unaccountable bureaucracy as evidence of Japan's secret agenda to take over the world, in fact these bureaucrats are as divided among themselves as the faction-ridden world of politicians. Ministry vies against ministry, and departments within ministries are engaged in constant turf battles that often seem to place the national interest way below the priority of one department chief not losing power or face in front of another department chief.

A classic inter-ministry conflict, which has been dragging on for years, is the battle over postal savings accounts, and the extent to which they unfairly compete with banks' saving accounts. Recently, as Japan's banks have begun to creak under a mountain of bad debts, the resentment against the cosseted postal savings system has bubbled up to the surface, with officials from the Ministry of Posts and Telecommunications (MPT), which oversees the postal savings, taking on officials from the Ministry of Finance (MoF) in public. It is all very edifying.

The enormous size of Japan's postal savings system is mind-boggling. At the end of 1992, total deposits amounted to Y166,480bn. That is equivalent to pounds 832bn, or bigger than the United Kingdom's gross domestic product. They accounted for more than 30 per cent of all private savings in Japan.

First established in 1875, the postal savings system was used by the government to fund military expansion in the 1930s and 1940s and, after the war, industrial and infrastructure expansion. Unlike private banks, the postal savings system pays no taxes or insurance deposit fees and is not required to keep a minimum cash reserve with the Bank of Japan.

It has an incomparable branch network throughout Japan - some 24,000 post offices in cities, towns and villages, which also perform the standard functions of selling stamps and sending parcels when they are not collecting savings from the locals. But what has angered the banks most is that postal savings has been able to offer better interest rates and more favourable withdrawal terms on its time deposits than those allowed to the banks.

Open secret

To offset this, investors have been technically limited in the amount they can invest in postal savings - there is a ceiling of Y10m, or about pounds 50,000, on accounts. But the post offices require few formalities for someone opening a new account, and it is an open secret that many people maintain multiple accounts. The MPT does not release figures on the number of individual accounts, but it is thought to amount to at least two accounts for every man, woman and child in Japan.

Banks had long complained about this state of affairs, but towards the end of last year a disturbing new trend emerged - savers had begun to withdraw bank savings to transfer to the post office, as rumours of serious problems in the banking system strengthened. This threatened to become a self-fulfilling prophecy, which might eventually have led to a run on some banks. The banks hit back.

In November banks held a public rally in Tokyo to protest at the unfair competition from postal savings. The following month, the newly appointed Finance Minister, Yoshiro Hayashi, spoke of the need to eliminate the favourable interest rate differential of the postal savings system. The battle was on.

The new Minister of Posts and Telecommunications, also appointed in December, Junichiro Koizumi, at first seemed to be coming out on the side of reformers - much to the dismay of bureaucrats in the ministry.

Not only did he declare his opposition to a scheme of his own ministry to widen tax exemptions for elderly citizens holding postal savings accounts. He went further to call for an internal review of the entire system, and hinted that it might even be time to privatise postal savings. Mr Koizumi's remarks were so controversial that one of his senior deputies in the ministry threatened to resign.

But whether or not Mr Koizumi was serious about his review of the postal savings system, one of his statements appears to have had the opposite effect to what was intended. He had referred to the criticisms of commercial banks that the postal savings system had 'advantages they cannot possibly copy'. This merely heightened public interest in the value of postal savings, at a time when banks' prestige is at a low. So last month the system saw a net increase in deposits of Y2,310bn, the second-highest monthly increase ever, as savers rushed in to benefit from these advantages that could not be copied.

Safe haven

This surge in deposits, largely at the expense of regional banks, which are thought to be among the most troubled by bad debts, has almost completely overshadowed a grudging concession from the MPT - to peg the interest rates it offers to money market rates, wiping out one of its old advantages of paying higher rates. This change is to take effect from June, but if the banks' bad debt situation continues to deteriorate - and there are no signs to the contrary - savers are likely to continue their flight to the post office for a safe haven for their money.

The Ministry of Finance has played an interesting role in the affair. Those officials in charge of the banks have continually argued for fewer concessions to be given to the postal savings system. But in other parts of the ministry where decisions on public spending are made the postal savings system is a welcome crutch in these days of fiscal austerity.

Most of the deposits taken in at post offices are pooled in the Fiscal Investment and Loan Programme (Filp) - which is controlled by the MoF. And the MoF can use this money more or less as it likes, since, unlike the budget, it is not open to parliamentary debate.

A lot of the money being deployed now, directly and indirectly, to prop up the stock market and real estate, is coming from the trusty old Filp. And this, to paraphrase Mr Koizumi, conveys on the MoF advantages that the banks and the government cannot possibly copy.

(Photograph omitted)

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