EDITORIAL: Proposal on postal funds

Kazuhiro Haraguchi, the minister of internal affairs and communications, has made a troubling proposal that could put Japan Post Bank Co. on a dangerous path in a misguided attempt to offer a new rationale for the planned expansion of the bank's operations.

Haraguchi has proposed to allow Japan Post Bank and Japan Post Insurance Co. to invest 10 trillion yen ($106.3 billion) of their funds in overseas projects like infrastructure development as well as those in Japan.

Other ministers of the administration of Prime Minister Yukio Hatoyama have also called for funneling part of the money in postal savings accounts into public investments both at home and abroad. With regard to domestic investments, schools, hospitals, bridges, telecommunications infrastructure and new energy sources have been cited.

Proponents say postal funds should also be used to help finance the development of highways and waterworks projects overseas and to support exports of Japanese Shinkansen and nuclear power technology.

These proposals are no doubt in line with the Hatoyama government's initiative to revise the plan for postal reform. The government's postal reform blueprint calls for roughly doubling the deposit cap at Japan Post Bank and the maximum life insurance coverage by Japan Post Insurance.

Its basic strategy for Japan Post Holdings Co.'s businesses is focused on maintaining nationwide postal services by enhancing the company's revenue base through an expansion of its financial operations.

There are serious problems with this policy. Japan Post Bank has enormous power to collect money from the public, but it lacks the ability to make productive loans to companies based on an accurate evaluation of their prospects. That means Japan Post Bank has no choice but to buy even more government bonds if the savings deposited in its accounts keep growing.

An increase in Japan Post's purchase of government bonds will have an unwanted effect on the nation's financial system as a whole. It will, for instance, make less capital available for companies. In an apparent move to diffuse criticism of the government's plan, ministers are promoting the use of postal funds for purposes other than investment in government bonds. Their ideas, however, could effectively revive the now-defunct fiscal investment and loans program, or zaito, which recklessly channeled private savings into government-backed loans and investments to promote policy goals.

Haraguchi has tried to reassure the public by saying, "The investment decisions will be made by Japan Post Holdings, Japan Post Bank and Japan Post Insurance, and we will only provide strategic support."

But trying to apply such an approach to tasks that should be conducted by the government reflects outdated thinking. The remarks made by Haraguchi and some other government policymakers appear to indicate a desire to create a sort of sovereign wealth fund, a state-owned investment fund, as a tool to tap private savings for investments in line with the government's policy agenda.

The government should promote strategic overseas investments and loans by diversifying its official development aid program and making policy efforts to improve the environment for flows of Japanese private capital into overseas markets.

In the banking industry, it is regarded as a risky tactic to use a deposit--which can be withdrawn at any time without notice--for long-term investment purposes. It would not make good sense to use postal savings accounts to finance long-term investments overseas, either.

We hope Japan Post will not be seduced by any proposal that could harm the interests of depositors and policyholders.

Diversification of investments of postal savings funds should be done through a cautious approach tailored to the investment abilities of Japan Post. Any reckless, headlong rush to expand the postal financial operations would be unacceptable.

--The Asahi Shimbun, April 28