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2 Japan
Post's stalled sale a saving
grace By Ellen Brown
When a spokeswoman for the International
Monetary Fund (IMF) said at a news conference on
March 17 that Japan has the financial means to
recover from its devastating tsunami, skeptical
bloggers wondered what she meant. Was it a polite
way of saying, "You're on your own?"
Spokeswoman Caroline Atkinson said, "The
most important policy priority is to address the
humanitarian needs, the infrastructure needs and
reconstruction and addressing the nuclear
situation. We believe that the Japanese economy is
a strong and wealthy society and the government
has the full
financial resources to
address those needs."
Asked whether Japan
had asked for IMF assistance, she said, "Japan has
not requested any financial assistance from the
IMF."
Skeptics asked how a country with a
national debt that was over 200% of gross domestic
product (GDP) could be "strong and wealthy". In a
Central Intelligence Agency Factbook list of debt
to GDP ratios of 132 countries in 2010, Japan was
at the top of the list at 226%, passing even
Zimbabwe, ringing in at 149%. Greece and Iceland
were fifth and sixth, at 144% and 124%. Yet
Japan's credit rating was still AA, while Greece
and Iceland were in the BBB category. How has
Japan managed to retain not only its credit rating
but its status as the second- or third-largest
economy in the world, while carrying that whopping
debt load?
The answer may be that the
Japanese government has a captive funding source:
it owns the world's largest depository bank. As US
vice president Dick Cheney said, "Deficits don't
matter." They don't matter, at least, when you own
the bank that is your principal creditor. Japan
has remained impervious to the speculative attacks
that have crippled countries such as Greece and
Iceland because it has not fallen into the trap of
dependency on foreign financing.
Japan
Post Bank is now the largest holder of personal
savings in the world, making it the world's
largest credit engine. Most money today originates
as bank loans, and deposits are the magic pool
from which this credit-money is generated. Japan
Post is not only the world's largest depository
bank but its largest publicly owned bank. By 2007,
it was also the largest employer in Japan, and the
holder of one-fifth of the national debt in the
form of government bonds.
As noted by Joe
Weisenthal, writing in Business Insider in
February 2010:
Because Japan's enormous public debt
is largely held by its own citizens, the country
doesn't have to worry about foreign investors
losing confidence.
If there's going to
be a run on government debt, it will have to be
the result of its own citizens not wanting to
fund it anymore. And since many Japanese fund
the government via accounts held at the Japan
Post Bank - which in turn buys government debt -
that institution would be the conduit for a
shift to occur.
That could explain why
Japan Post has been the battleground of warring
political factions for over a decade. The Japanese
Postal Savings System dates back to 1875; but in
2001, Japan Post was formed as an independent
public corporation, the first step in privatizing
it and selling it off to investors. When newly
elected prime minister Junichiro Koizumi tried to
push through the restructuring, however, he met
with fierce resistance. In 2004, Koizumi shuffled
his cabinet, appointed reform-minded people as new
ministers, and created a new position for postal
privatization minister, appointing Heizo Takenaka
to the post. In March 2006, Anthony Rowley wrote
in Bloomberg:
By privatizing Japan Post, [Koizumi]
aims to break the stranglehold that politicians
and bureaucrats have long exercised over the
allocation of financial resources in Japan and
to inject fresh competition into the country's
financial services industry. His plan also will
create a potentially mouthwatering target for
domestic and international investors: Japan
Post's savings bank and insurance arms boast
combined assets of more than 380 trillion yen
(US$3.2 trillion) ...
A $3 trillion
asset pool is mouthwatering indeed. In a 2007
reorganization, the postal savings division was
separated from the post office's other arms,
turning Japan Post into a proper bank. According
to an October 2007 article in The Economist:
The newly created Japan Post Bank
will be free to concentrate on banking, and its
new status will enable it to diversify into
fresh areas of business such as mortgage lending
and credit cards. To some degree, this
diversification will also be forced upon the new
bank. Some of the special treatment afforded to
its predecessor will be revoked, obliging Japan
Post Bank to invest more adventurously in order
to retain depositors - and, ultimately, to
attract investors once it lists on the stock
market.
That was the plan, and Japan
Post has been investing more adventurously; but it
hasn't yet given up its government privileges. New
Financial Services Minister Shizuka Kamei has put
a brake on the privatization process, and the
bank's shares have not been sold. Meanwhile, the
consolidated Post Bank has grown to enormous size,
passing Citigroup as the world's largest financial
institution; and it has been branching into new
areas, alarming competitors. A March 2007 article
in USA Today warned, "The government-nurtured
colossus could leverage its size to crush rivals,
foreign and domestic."
Before the March
2011 tsunami, that is what it appeared to be
doing. But now there is talk of reverting to the
neoliberal model, selling off public assets to
find the funds to rebuild. Christian Caryl
commented in a March 19 article in Foreign
Affairs, published by the Council on Foreign
Relations:
As horrible as it is, the
devastation of the earthquake presents Japan and
its political class with the chance to push
through the many reforms that the DPJ
[Democratic Party of Japan] has long promised
and the country so desperately needs.
In other words, a chance for
investors to finally get their hands on Japan's
prized publicly owned bank and the massive deposit
base that has so far protected the economy from
the attacks of foreign financial predators.
The battle of the banks Before
the 1990s, Japan was the world's leading
industrial and consumer goods innovator. The
Japanese public-private model promised a high
standard of living and leisure time for all, with
much of the work done by robot-driven machines.
But Japan was also the world's largest
creditor, posing a threat to other international
interests. The Bank for International Settlement
(BIS), the "central bankers' central bank" in
Basel, Switzerland, demonstrated in 1988 that it
had the power to make or break banks and economies
when it issued a Basel Accord, raising bank
capital requirements from 6% to 8%. Japan's banks
were less well capitalized than other banks, and
raising the capital requirement forced them to cut
back on lending.
Housing in Japan was in a
major bubble. The Basel Accord supplied the pin.
When credit collapsed, so did the housing market,
creating a recession in Japan like that in the US
today. Property prices fell and loans went into
default, as the security for them shriveled up. A
downward spiral followed, ending with the total
bankruptcy of the banks. The banking system had to
be rescued by the government. Essentially, the
banks were nationalized, although that word was
avoided to prevent arousing criticism.
The
Nikkei stock market crashed and took Japanese
industries down with it. By 2001, Western
investors were finally able to penetrate Japanese
markets that had previously been closed to them,
entering the merger-and-acquisition market to
acquire crippled Japanese enterprises. Major
public companies were at least partially
privatized, including the railway, telegraph and
telephone companies; but the government resisted
letting go of its vital postal service system.
'Japan's second budget' The
history of the Japanese Postal Savings System
(JPB) is detailed in a University of Leipzig
discussion paper called "Behold the 'Behemoth':
The Privatization of Japan Post Bank".
Founded in 1875, the postal savings banks
were quite popular with the Japanese people, and
Japan soon had more post office locations than the
United States and other countries. Japanese postal
savings banks specialized in offering small
accounts for low-income households, in competition
with private savings banks that paid higher
interest rates but were considered less safe than
the government's postal savings system.
Postal savings banks were also attractive
to savers because they offered special time
deposits called teigaku savings, or "fixed
amount postal savings", on quite favorable terms.
These were 10-year time deposits from which
depositors could withdraw funds on short notice
without penalty, making them very liquid and
reducing interest-rate risk. There was a formal
limit of 10 million yen in postal deposits per
individual or household, but it was not rigorously
enforced; and wealthy savers could circumvent it
by holding multiple accounts.
JPB formed
the basis of a unique and opaque system of
borrowing and lending, which operated as a
"shadow" banking system sometimes referred to as
"Japan's second budget". Postal savings were
channeled into government-related banks or
forwarded to various government-affiliated
institutions, where lending was guided by the
Japanese Ministry of Finance (MoF). Formalized
after the Second World War and named FILP, this
system turned postal services into "a huge, opaque
pool for funding for various policy lending
purposes".
Unlike the national budget,
budget allocation to FILP did not require
parliamentary approval. Funds were channeled to
local governments, government-affiliated public
companies, and government financial institutions
acting as highly specialized lenders. Although
many countries have government-sponsored loan
programs, the Japanese program was remarkable for
its size. By 2001, the FILP program involved over
400 trillion yen, a sum equal to 82% of Japan's
GDP.
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