Japan's postal savings system, along with mail and insurance services, is to be privatized over a 10-year period beginning in 2007, according to the guidelines drawn up by the government's Economic and Fiscal Policy Council earlier this month. The question is how to transform the system into a viable institution that can compete with commercial banks on a level playing field.
Admittedly, bigness and inefficiency are the twin problems of the "yucho" (postal savings) system. Originally, the yucho was intended for small savers, with per capita deposits limited to 3 million yen. Beginning in the late 1980s, however, the ceiling was raised in stages to the current level of 10 million yen. The balance of postal deposits now exceeds 230 trillion yen, creating distortions in the financial system.
Privatizing such a gigantic deposit network will not be easy. That helps explain why the council, while setting a timetable for privatization, seems unable to work out a plan of action. Opinion is still sharply divided within the government and the ruling parties. Prime Minister Junichiro Koizumi, the champion of postal reform, should explain in plain language why privatization is necessary and how it can be best achieved.