With
the ruling Liberal Democratic Party's (LDP's)
landslide victory in the latest election, the
postal privatization bills are highly likely to
pass the Diet. Yet, it is still quite uncertain
whether the average Japanese will really feel the
benefits of postal privatization.
During
the campaign, Prime Minister Junichiro Koizumi
emphasized that reducing the number of government
employees was an important structural reform, and
he pointed to the 260,000 employees of Japan Post.
But their salaries are paid by revenues
from the postal services - not by taxes - so
decreasing their numbers will not largely help
to
reduce the country's
skyrocketing deficit.
Before the election
campaign started, Koizumi's government frequently
explained the economic merits of postal
privatization as if chanting a mantra. The
government argued that more than 140 trillion yen
(US$2.9 trillion) held by Japan Post would flow
into the private sector, thereby revitalizing the
economy once the postal organization was
privatized.
A tremendous number of
Japanese support Koizumi's pet project, believing
the plan would bring about an economic blessing.
According to Teikoku Databank, a research firm,
64.1% of 10,566 firms said that postal
privatization would benefit the economy.
But some experts question or even deny the
possibility that such a money flow will ever
happen. They say that many Japanese companies have
rich cash flows and do not need such a huge amount
of money.
"Adding Japan Post as an
additional lender will worsen the already serious
problem of excess lenders and will weaken private
sector financial institutions even further," said
Richard C Koo, chief economist of Nomura Research
Institute.
Peter J Morgan, chief economist
of HSBC Securities, said, "The benefits of a
redeployment of the assets of the postal financial
institutions would be limited. For example, we
estimate that if they had the same asset
allocation as private institutions, they would
increase their lending by 148 trillion yen.
However, private banks already have far more
deposits than they can lend out because loan
demand is fundamentally weak."
So what is
the final destination of the postal services money
if much of the cash does not end up in the private
sector?
Experts say the privatized Japan
Post would continue to buy government bonds or
zaito bonds, which are now issued
specifically for special public corporations, as
long as there is no huge loan demand on the part
of nonfinancial firms.
This scenario,
however, would be a nightmare for those who think
that a privatized Japan Post won't buy the bonds.
They want to prevent a huge amount of funds
flowing into money-wasting public corporations,
thus increasing the government's mammoth debt.
Yet preventing the privatized organization
from buying the government bonds would also
increase government debt because bond prices would
likely plunge and, in turn, yields would rise
sharply.
Another possibility is that once
Japan Post is privatized, it could invest much
money into more profitable financial products than
Japanese government bonds, regardless of whether
they are Japanese or foreign.
Such a
possibility was reported by The Wall Street
Journal last month. The August 26 digital edition
of the newspaper said: "Citigroup estimates that
US Treasuries, European bonds and Japanese and
foreign stocks would be the big winners if the
reform goes through."
It also said
Citigroup estimated a change in ownership would
drain $1.375 trillion out of Japanese bonds,
including Japanese government bonds and municipal
and corporate debt, as new management searched for
more lucrative investments or customers shifted
their business elsewhere.
Even if Japan
Post's money flows into foreign countries, that
may not necessarily be a bad thing for the
Japanese economy. Japan, after all, needs
stability in the US economy, with its huge federal
deficits.
Economist Saito Susumu points
out that from the perspective of US fiscal
authorities and the financial community, the
imminent privatization of Japan's postal savings
and insurance funds of about $3 trillion must
appear to offer the extra opportunities to finance
the US budget and external deficits that have
mushroomed much faster than they had expected.
The huge fiscal stimulus, such as tax cuts
and war spending, has swung the balance on a net
borrowing basis of the American public sector at
the federal, state and local government levels
combined from a surplus of $159 billion in 2000 to
a deficit of $553.6 billion in 2004 on a GDP
account basis. The expansionary fiscal policy
financed by the increased issuance of
deficit-covering bonds, coupled with the Fed's
extremely lax monetary policy, has indeed helped
rebound the US economy from the slump that had
followed the stock market crash in 2000.
Saito Susumu said that the problem was
that the buoyant US economy had ballooned the US
current account deficit to nearly $800 billion at
an annual rate lately, requiring the US economy to
secure the net inflow of funds from abroad by the
same amount.
The Japanese government under
Koizumi has already acquired generously more than
$400 billion of the US Treasury bonds and notes in
the name of official foreign exchange reserve for
the past four years.
What is potentially
problematic is that investments into foreign
countries, even if hedged, would be exposed to
changes in exchange rates that could seriously
undermine the value of the money invested abroad.
If such a situation occurs, Japanese voters could
be forced to ponder the meaning of the latest
election, and why they supported Koizumi's pet
project.
Hara Manabu is senior
staff writer, Asahi Shimbun.
