What is Japan's "Postal Savings System"?

What is Japan's "Postal Savings System"?

What is Japan's "Postal Savings System"?

Answers to your questions about the news.
April 25 2001 5:07 PM

What is Japan's "Postal Savings System"?

Junichiro Koizumi, soon to be Japan's prime minister, helped secure his election, according to press reports, by his bold pronouncement that he wanted to privatize the country's postal savings system. Just what is Japan's postal savings system?

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It is the largest financial institution in the world, with about $2.4 trillion (250 trillion yen) on deposit. It is a government-run banking system based in post offices. Japan has 24,000 post offices, and each has a bank inside. The postal savings system does everything from cashing checks to selling life insurance to issuing long-term certificates of deposit to providing automatic check-paying and payroll deposit services. The system holds one-third of all the country's bank deposits. It was created in 1875 and modeled after a British system established in 1861. In the 19th century, it was hard for rural people to get to banks, and banks didn't yet have a modern system of safeguards on deposits. So governments began setting up bank equivalents in post offices. The United States created one in 1910, attracting mostly urban immigrants who distrusted private banks. It never gained the popular appeal that the Japanese version has and was dismantled in 1967.

Although privatizing the Japanese system, which diverts money from private banks, has long been discussed, the opposition has been fierce. Postmasters tend to be local leaders of the ruling Liberal Democratic Party, so they have a personal interest in maintaining the banks. The postal savings system has also been a rich source of off-budget revenue for other government agencies. Many government corporations have financed projects with loans from the postal savings system. Whether these loans can ever be repaid is a question for the new prime minister.

Explainer thanks Arthur Alexander of the Japan Economic Institute of America.