Japan Post expects returns on investments with postal savings funds over the next two years to fall 450 billion yen below expectations due to plunging long-term interest rates.

The public entity, which took over mail delivery, postal savings and "kampo" life insurance services from the government April 1, expects investment returns to total 8.305 trillion yen in the two fiscal years through March 2005, Japan Post officials said Thursday.

The amount is 454.2 billion yen below the target set in the midterm business plan approved by posts minister Toranosuke Katayama in March, government sources said.

Japan Post is now expected to revise the plan.

Behind the lower projection is sustained domestic deflation that is causing long-term interest rates to fall sharply, cutting into investment returns for many fund managers.

Of the three services, the postal savings business generates the largest part of the entity's revenues.

Japan Post primarily entrusts its postal savings to the government's fiscal investment and loan program. It also purchases government bonds.

As a result, the body's returns are influenced largely by levels of long-term interest rates.

Last week, Japan Post cut its projections for 10-year government bond yields for fiscal 2003 and 2004 to 0.7 percent for both years from 1.5 percent and 1.7 percent, following the recent plunge in long-term interest rates.