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The Liberal Democratic Party’s parliamentary group on postal issues has presented an outline of a bill to revise the Postal Service Privatization Law. The main element of the bill is to merge Japan Post Holdings with Japan Post Co., which is under the umbrella of the holding company. The bill also includes a provision for Japan Post Holdings to hold a certain number of shares in two financial companies, Japan Post Bank Co. and Japan Post Insurance Co.
The aim of the bill is to improve the revenues of the postal business and maintain the post office network. The parliamentary group plans to submit the bill to the current Diet session as a lawmaker-initiated bill.
After the postal system was privatized in 2007, Japan Post Service Co. and Japan Post Network Co. were merged to create Japan Post under a 2012 revision of the law. Since then, the environment surrounding postal services has changed significantly.
Digitization has accelerated, and the volume of posted items has almost halved since the peak in fiscal 2001. But because the number of delivery personnel cannot be significantly reduced, the operating profit of the postal business, which Japan Post Co. is responsible for, was in the red in fiscal 2022 for the first time since the privatization.
One could say it is time to reconsider the future of Japan Post Holdings.
However, there are many questions about the LDP’s bill to revise the law. It is not clear how the merger will lead to rebuilding the postal business. If Japan Post Holdings continues to hold shares in the two financial companies, it would be a major reversal of the policy to achieve complete privatization by selling all the shares.
Postal privatization had also been expected to spur growth in the financial services.
Japan Post Holdings currently holds about 60% of Japan Post Bank shares and about 49% of Japan Post Insurance shares. As they sell these shares, regulations on starting new businesses will be eased in stages, allowing more freedom in management — a situation which is expected to lead to the growth of financial services.
However, if Japan Post Holdings continues to hold shares in the two financial companies, as proposed in the LDP bill, will it hinder their growth instead? The main source of revenue for post offices is the commissions they receive from the two financial services companies, and this could reduce post offices’ profits.
There are about 24,000 post offices nationwide, and they also provide financial and insurance services to customers. As banks and other financial institutions reduce the number of their business bases, the importance of the post office network is growing.
The two financial companies generate 80% of Japan Post Holdings’ revenue. Even if Japan Post Holdings sold all its shares in the two financial companies, post offices would remain a major sales channel for the two companies.
In such a case, there is concern that post offices and the two financial companies will not be able to maintain a stable relationship over the long term if the current regulations remain in place. Japan Post Holdings should also proactively indicate the form the company should take.
