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Cablegate: Goj Presents Its Outline On Postal Reform

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RUEHIN/AIT TAIPEI PRIORITY 7581
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEHAAA/NSC WASHDC PRIORITY
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY

UNCLAS SECTION 01 OF 03 TOKYO 000282

SENSITIVE
SIPDIS

STATE FOR E, EEB AND EAP/J
NSC FOR LOI, RUSSELL
USTR FOR AUSTR CUTLER, BEEMAN, LEE, AND HOLLOWAY

E.O. 12958: N/A
TAGS: ECON EFIN PGOV JA
SUBJECT: GOJ PRESENTS ITS OUTLINE ON POSTAL REFORM

REF: A. 09 TOKYO 2921
B. TOKYO 0170

SENSITIVE BUT UNCLASSIFIED. CONTAINS BUSINESS SENSITIVE
INFORMATION.

1. (SBU) SUMMARY. Senior Vice Minister (SVM) Kouhei Ohtsuka
of the Financial Services Agency (FSA) met with the DCM on
February 8, to give an advance briefing of the release of the
Government's outline on postal reform. The release of the
outline begins a one-month dialogue among coalition partners.
Keys issues for discussion include the percentage of
government ownership of postal companies, whether caps on
saving deposits and insurance policies should be raised, and
the expansion of postal financial companies into new business
areas. Ohtsuka emphasized the GOJ's desire to conduct an
open and transparent process and to continue to exchange
views with the USG and U.S. industry representatives. He
also expressed interest in finding synergies and cooperation
on products and distribution of products between the Japan
Post Group companies and the private sector. Ohtsuka claimed
postal reform was important to secure financial stability in
Japan. In a meeting with the Ambassador, a U.S. industry
representative said the outline was "not as bad as expected."
END SUMMARY.

-----------------------------------
OUTLINE BEGINS ONE-MONTH DISCUSSION
-----------------------------------

2. (SBU) On February 8, SVM Ohtsuka gave the DCM a preview
of the outline on postal reform by the Postal Reform Policy
Committee released later that day. Ohtsuka was alone, and
his command of the details of the reform plan demonstrated
his intimate involvement in its development. He said the
release of the outline will begin a one-month discussion on
issues related to postal reform. At the end of this period,
Minister for Internal Affairs and Commmunication (MIC)
Minister Haraguchi and FSA and Postal Reform Minister Kamei
will consult with the Prime Minister's Office to make the
final decision on the legislation.

3. (SBU) The current five company structure will be
reorganized into three companies. JP Holdings, JP Service
(mail delivery), and JP Network (post offices) will be merged
into a new parent company and will be designated as a special
corporation. This new company will have a mandate of
providing universal service in a uniform manner throughout
the country. A special law (tokubetsu hou), to be drafted in
the current Diet session, will govern the new parent company.
JP Bank and JP Insurance will remain as private financial
institutions governed by the Banking Law and Insurance
Business Law and supervised by the FSA. They will have the
option to develop new businesses, including third sector
insurance products. Ohtsuka said MIC would supervise the
parent company. Also, he said the special law would create a
regulatory carve-out for very small post offices and they
would be administered by both MIC and the FSA. (NOTE: The
definition of what constitutes a small post office is not yet
defined. This, however, tracks with comments by Minister
Kamei who said it was unfair for small post offices to be
subject to the same regulations as megabanks. END NOTE.)

4. (SBU) The amount of stock held by the government in the
new parent company and the parent company's ratio of
ownership in the two financial institutions are still to be
determined. Options mentioned in the outline are 100
percent, more than two-thirds, more than one-half, and more
than one-third government ownership of the parent company,
and anywhere from more than one-third to 100 percent
ownership of JP Bank and JP Insurance by the parent company.
Currently, JP Holdings owns 100 percent of the stock of both

TOKYO 00000282 002 OF 003


financial companies. Also for discussion in the coming month
is whether to lift the 10 million yen (approx. $112,000) cap
on JP Bank deposits and 13 million yen (approx. $146,000) cap
on JP Insurance policies. Ohtsuka indicated there is a
connection between these two issues. He contends the greater
the percentage of shares held by the government via the
parent company, the lower the cap should be. Ohtsuka thinks
the caps should be reviewed every three years. He believes
this would provide a smooth transition from the current third
phase of postal service to a future fourth phase of reform,
when the GOJ would divest itself of all stock. Ohtsuka
characterizes the first phase as the Meiji Period to World
War II and the second phase as World War II until the 1990's.


--------------------------------------------- -
REFORM NECESSARY, KEEP DIALOGUE GOING WITH USG
--------------------------------------------- -

5. (SBU) Ohtsuka indicated he would like to continue
dialogue with the USG and U.S. industry, via the American
Chamber of Commerce in Japan (ACCJ), during the consideration
period. He emphasized that efforts should be made to realize
a synergy effect through business tie-ups between JP group
companies and private sector companies. The JP group
companies should not harm the private sector, asserted
Ohtsuka; they should look for "win-win" partnerships with
private companies that already have the know-how. As a
favorable example, Ohtsuka cited the distribution of some
Aflac products at post offices. He believes there is room
for expansion of this type of business going forward.

6. (SBU) In concluding his presentation, Ohtsuka emphasized
that postal reform was necessary to protect Japan's financial
system. There are concerns about the profitability and
future potential of the Japan Post group companies. Ohtsuka
said he understands that the management of these companies
will impact the private sector. He mentioned Treasury
Secretary Geithner's statement on the diversity of financial
systems at the G7 Financial Ministers Summit the previous
day, though Ohtsuka acknowledged that Secretary Geithner was
not speaking specifically about Japan Post. Ohtsuka tied
that to the unique status of the postal system in Japan and
its 130-year history. He said the GOJ would proceed
carefully with postal reform; rapid changes are impossible.
Ohtsuka hopes the coming changes will be good for both Japan
and the United States. He said he understands our level
playing field concerns and that he appreciates the
consideration and understanding of the USG as this process
moves forward. Ohtsuka emphasized his opennesss to
constructive and creative discussions, saying this should not
become a political issue.

7 (SBU) Asked if new products would be included under the
universal service obligation, Ohtsuka said they would not.
He said the universal service requirement of the government
should be kept to a minimum. While repeating that third
sector products would not be part of the requirement, he
mentioned Japan Post group companies were facing financial
difficulties. He implied they should be freed up to become
more self-sufficient and thus, perhaps, move in to more
profitable areas. Ohtsuka tied all of this to his desire to
have the GOJ hold as little shares as possible.

--------------------------------------
INDUSTRY TAKES A WAIT AND SEE APPROACH
--------------------------------------

8. (SBU) A U.S. insurance industry representative told the
Ambassador in a meeting on February 9, the outline "could
have been much worse." He said he was encouraged there are a
number of market-oriented reformers in the Democratic Party

TOKYO 00000282 003 OF 003


of Japan (DPJ). He believes they are trying to do the right
thing within the confines of the current political and
economic situation in Japan. The businessman thanked the
Ambassador for the active engagement with the GOJ by Embassy
and other USG officials. He said he thought this was
definitely making a difference in increasing the transparency
and openness of the process. The representative said much is
still vague and it will be necessary to see what the next
month of consideration by the Diet brings. One area of
concern he highlighted was the regulatory carve out for small
post offices. Another is the mention of tax breaks for the
postal companies. The industry representative said it is
imperative to keep the dialogue going to avoid a trade
dispute on postal issues between the United States and Japan.
ROOS

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