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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