Financial Sector

August 2004

Toyota Motor Corp. plans to enter the securities brokerage business by selling investment trusts, bonds and other financial instruments at affiliated dealerships within this year. The new business will begin at Nagoya Toyopet Co. a major Toyota group dealer. Toyota will be the first Japanese automaker to move into the securities brokerage business since the market was deregulated in April. The Toyota dealerships will provide information to customers on asset management and make recommendations on investment trusts, bonds and other instruments. Orders will be processed through Toyota Financial Services Securities Corp. Nagoya Toyopet will shortly register with the Finance Ministry for the brokerage business. About nine of its sales representatives have obtained licenses as securities agents. (August 28, Kyodo News, the Daily Yomiuri, the Mainichi Shimbun)

Japan Post's recently announced parcel delivery tie-up with Lawson Inc. (2651), a major convenience store chain operator, is an open affront to the spirit of postal reform. Lawson has decided to handle Japan Post's parcels in a move likely to end its long-standing partnership with Yamato Transport Co. (9064) because of the public corporation's aggressive pricing strategy. Japan Post can offer parcel delivery services at low prices, despite the poor profitability of its mail division because it can count on profits from its postal savings and insurance operations to support parcel services while also enjoying preferential tax treatment. Japan Post's business strategy clearly contravenes the government's principles regarding the proposed privatization of postal services, which demand financial independence of the three postal divisions. The public operator is unfairly exploiting its tax and other advantages in competing with its private rivals. If it continues to enjoy these advantages, even after the privatization, it will be able to usurp private delivery firms' customers through its subsidized operations. That would ruin many of the benefits of the privatization. Japan Post's move indicates that the ongoing work to craft a postal privatization plan is veering off the right track.
Policymakers should correct the direction of this undertaking in line with its original objectives. There are several crucial points necessary to accomplish truly effective privatization. First, the three postal services -- mail delivery, postal savings and postal insurance -- should be split into completely separate and independent units. Putting them under a holding company is a bad idea because this formula could lead to collusive relationships among the three divisions. Second, the government should terminate its capital and other involvement in the privatized postal services as quickly as possible to secure a level playing field. Even if the government stops guaranteeing postal savings and insurance products, its continued stakes in the new private companies would give them a special status and unfair advantage over truly private players. Third, the privatized operators of mail, postal savings and insurance services should not be required to provide uniform services nationwide. That will hamper their efforts toward greater efficiency and increase the invisible burdens on taxpayers. Fourth, both the postal savings and insurance companies should be divided into much smaller businesses. Otherwise, these firms would be financial behemoths with total funds amounting to 230 and 120 trillion yen, respectively. Such gargantuan entities would be disruptive forces in their respective industries. Fifth, the reform of other public corporations, especially government-affiliated financial institutions, should be accelerated. This is important for achieving one of the most important purposes of postal privatization, namely curbing the massive flows of funds from the postal savings and insurance systems into such public corporations via the fiscal investment and loans program. Privatizing or otherwise overhauling the government-backed lenders, which serve as the principal conduits for these fund flows, is essential. Postal reform will have a far greater impact on the Japanese economy than any past reforms of public enterprises. Prime Minister Junichiro Koizumi must exert political leadership to put the debate back on the right path. (August 23, Nikkei, Editorial from The Nihon Keizai Shimbun Monday morning edition)

The government is considering moving Japan Post's "teigaku" savings deposits and postal life insurance to a new state-run entity instead of privatized firms to coincide with postal service privatization in April 2007, The Nihon Keizai Shimbun learned Thursday. "Teigaku" savings are the post office's version of time deposits and are fully guaranteed by the government, as is postal insurance. The government had been discussing Japan Post's privatization in such panels as the Council on Economic and Fiscal Policy. An agreement was reached earlier this month to privatize the organization as four independent businesses and put them under a holding company.
Since then, the focus had been on how to safely manage the products that have government guarantees in case postal services go bankrupt. Under the plan now being considered, the products that will continue to have government guarantees after privatization would be nearly all insurance products and teigaku savings and other less-liquid savings deposited before privatization. To fully insure the payments, these will be held not by the privatized companies, but rather by a yet-to-be-established state-run body. The new entity will maintain close links with the privatized companies, and these assets will be consigned to these firms for management, according to the plan.
The government will set a certain limit on how much of these assets will be able to be invested in equities. Most of them are likely to be invested in government bonds. Because the privatized companies will handle withdrawals on deposits and insurance payments, customers will be able to receive the same services they do now at post offices. What status the new entity will have is expected to be decided by autumn. A spinoff from Japan Post is one of the ideas. (August 20, Nikkei, from The Nihon Keizai Shimbun Friday morning edition)

Major banks boost consultation services for retail customers. The country's major banks are stepping up efforts to operate branches that can provide consultation services to individual customers, in an apparent bid to attach greater importance to the retail banking business, The Nihon Keizai Shimbun learned. Behind the moves is recognition that enhancing the sales of mortgage loans, investment trusts and other financial instruments is vital to improve earnings. Mizuho Bank, a unit of Mizuho Financial Group Inc. (8411), will in September equip five branches in the Tokyo metropolitan area with special counters to provide advice on asset management. The bank will increase the number of such branches designed to focus more on retail operations to at least 250 within three years, more than half of all its branches. Mizuho Bank will also open 100 branches jointly with Mizuho Investors Securities Co. (8607) by the end of next fiscal year. The bank will install at other branches a video-phone system, enabling customers to talk with marketing staff at the Mizuho group's securities and trust banking units. Sumitomo Mitsui Banking Corp. plans to increase the number of its "Consulting Plaza" type of branches to 100 as soon as possible. The branches, intended to offer consultations for retail investors, are open during the evenings and on public holidays as well. The unit of the Sumitomo Mitsui Financial Group Inc. (8316) aims to use these outlets to increase transactions with salaried workers on their way home from work. The bank hopes the service will push up earnings from the sales of investment trusts and insurance policies to 50 billion yen in the current fiscal year from around 40 billion yen in fiscal 2003. Bank of Tokyo-Mitsubishi, the core entity of Mitsubishi Tokyo Financial Group Inc. (8306), will, by the end of the current fiscal year, launch about 20 branches where the group's trust banking and brokerage units operate their outlets together with the bank's. The bank will also open about 10 branches specifically designed to provide consultation services. UFJ Bank, the main unit of UFJ Holdings Inc. (8307), has already launched relatively small branches, dubbed UFJ Plus, with business hours longer than other outlets, mainly on bustling streets in major urban centers. (August 17, Nikkei, fromThe Nihon Keizai Shimbun Tuesday evening edition)