GOJ BACKTRACKS ON POSTAL PRIVATIZATION, CHANGE OF

UNCLAS SECTION 01 OF 02 TOKYO 002432 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 BACKTRACKS ON POSTAL PRIVATIZATION, CHANGE OF LEADERSHIP AT JAPAN POST REF: A. TOKYO 2246 ¶B. TOKYO 1329 ¶C. TOKYO 1106 SENSITIVE BUT UNCLASSIFIED. CONTAINS BUSINESS SENSITIVE INFORMATION. ¶1. (SBU) SUMMARY: The GOJ announced plans to halt postal privatization and undo reforms undertaken by the Koizumi administration in 2007, following an October 20 cabinet decision. Notably, the GOJ intends to introduce legislation in the regular Diet session scheduled for January 2010 to abolish the current law on postal privatization and to legally guarantee universal basic postal savings and postal life insurance services. The cabinet decision led to the expected resignation of Japan Post Holdings Co. President Yoshifumi Nishikawa, who will be replaced by former Ministry of Finance Administrative Vice Minister Jiro Saito. END SUMMARY. DOING WHAT THEY SAID THEY WOULD DO -------------- ¶2. (SBU) The coalition Cabinet of PM Hatoyama announced a basic policy to reform Japan's postal service October 20, three days ahead of schedule. Under the policy the government will make basic postal, postal savings, and postal life insurance services available throughout the country by means of the nationwide network of post offices; utilize the network of post offices as the base for one-stop administrative services; legally guarantee universal basic postal savings and postal life insurance services; review the current four-company system under a holding company and reorganize the business model while keeping the reorganized entity a joint-stock company in order to ensure flexible management; obligate the reorganized Japan Post Group to disclose more information and strengthen its accountability; and abolish the current law on postal privatization. One press report said that enacting all of these changes will require amendments to hundreds of laws and could take nearly two years to complete. ¶3. (SBU) An insurance industry representative told Econoff the Democratic Party of Japan (DPJ) is "doing what they said they would do." He characterized the changes as close to the hearts of DPJ policy makers, but he did think the DPJ leadership was letting People's New Party leader and Minister for Financial Affairs and Postal Reform Shizuka Kamei go a little further and faster than what had been expected. Industry representatives do not view the Cabinet announcement as all bad news. The legislation will come early next year and will include an overall review of postal privatization. One representative said this will be a key time to drive home the point that a level playing field is required between Japan Post Insurance and the private sector. JAPAN POST GROUP LEADERSHIP CHANGE -------------- ¶4. (SBU) After the Cabinet decision and as expected, Yoshifumi Nishikawa (71),President of Japan Post Holdings Company, announced he will resign his position October 28. Nishikawa's leadership became increasingly tenuous after he came under attack for the proposed sale of Japan Post's resort network early this year (Refs A-C). Both Hatoyama and Kamei repeatedly called for Nishikawa's resignation after the DPJ took power. In his press conference, Nishikawa, who had been appointed by former PM Koizumi, said he was resigning because of the "wide gap" between the company's business strategy as he had designed it and the new government's plans. TOKYO 00002432 002 OF 002 ¶5. (SBU) On October 21, the government announced that former Ministry of Finance (MOF) Administrative Vice Minister Jiro Saito (73) will replace Nishikawa. Saito is said to be close to DPJ Secretary-General Ichiro Ozawa. Press reports say during Saito's term at MOF he devised a way to finance public works projects via the sale of government-owned Nippon Telegraph and Telephone Corporation shares. This background would be consistent with Kamei's reported intention to use income from banking and insurance services to support rural regions and small and medium-sized businesses. The opposition Liberal Democratic Party (LDP) and some in the press have said Saito's appointment is hypocritical since the DPJ opposed the appointment of another former MOF official as a Bank of Japan governor last year when it was the minority party. Also noteworthy, Kamei reportedly said Saito would be good at developing new business for the companies in the group. COMMENT -------------- ¶6. (SBU) While the Cabinet's decision is consistent with prior statements, the breadth of the proposed changes regarding postal privatization comes as a surprise. The Koizumi privatization reforms, including the promise of moving large amounts of resources from the public sector to the private sector, are dead. The new DPJ-led government clearly believes that the Koizumi reforms were neither good for the people, nor what the people wanted. As we have consistently said, this is a choice for Japan to make, and the USG neither favors nor opposes privatization. During the review period, we must continue to emphasize the importance of a level playing field between Japan Post group companies and the private sector. We must also remain vigilant regarding the approval of any new products during this tumultuous period. ROOS