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Mad Scramble for Maturing Postal Deposits

March 13, 2000

"Another Y2K problem" is how observers are describing the huge pool of postal savings that will fall due beginning in April 2000. Some 106 trillion yen (1 trillion U.S. dollars at 106 yen to the dollar) in time deposits will reach maturity over a span of around two years, and a sizable share are expected to be swallowed up by private financial institutions.

Banks, securities houses, and other private-sector financial institutions are eyeing the huge savings as a key to their survival in the era of Japanese Big Bang financial system reforms, and they have shored up their lineup of mutual funds and other commodities to attract investors. Post offices are not sitting still, either; they are trying to prevent the funds from flowing out of the system by offering new services that take advantage of its large network of branches nationwide. The race to attract the large savings in postal accounts has already begun.

A Legacy of the High-Interest Years
Postal savings are a unique financial service offered by the nation's post offices that was launched more than a century ago to encourage citizens to set aside their earnings and to protect the savings of small depositors. The system enjoys several advantages over private financial institutions, the biggest being that it is managed directly by the national government under the jurisdiction of the Ministry of Posts and Telecommunications, making it "bankruptcy-proof." Another big edge is a network of approximately 25,000 branches in communities across the country, including remote villages that private firms are likely to ignore.

The postal savings system used to offer higher interest and more attractive financial products. During the 1980s, when interest rates were regulated, postal savings accounts offered higher returns than comparable accounts at private institutions. The most popular commodity was the teigaku chokin, which offered fixed interest for up to 10 years without the inconvenience of ordinary time deposits. At the end of March 1999, deposits in postal accounts totaled 252 trillion yen (2.4 trillion dollars), considerably more than the combined total held by Dai-Ichi Kangyo Bank, Fuji Bank, and Industrial Bank of Japan, which will merge in Spring 2002 to become the world's largest financial concern.

Approximately 80% of such deposits were in teigaku chokin accounts, half of which (worth 106 trillion yen) were opened in the beginning of the 1990s when interest rates ranged from around 4% to 6%. They remained on deposit while interest on other commodities plummeted to record lows, but they will reach maturity over the next couple of years. From the viewpoint of private-sector financial institutions, this huge pool of savings is money that is just waiting to be lured away.

Scramble for Postal Funds Begins
The prospect of a huge drain of funds from the postal savings system is a source of concern for the government, which has used the deposits to fund its fiscal investment and loan program of public works and housing projects and to purchase deficit-covering government bonds. An outflow of such funds, the Posts and Telecommunications Ministry worries, would represent a serious threat to government operations.

Efforts to keep the expected drain to a minimum include new services that take advantage of the vast post-office network. In 1999 these branches began accepting reservations and orders for airline tickets and gifts, with payment being made with the money held on deposit. Some post offices now sell lottery tickets. ATMs at major branches have had their hours extended, moreover, and agreements have been reached with foreign-owned and domestic banks to mutually link their ATM networks.

The deregulation of interest rates has eliminated some of the advantages the postal system enjoyed, and many private-sector firms feel that now is their chance. Banks believe that people who withdraw their postal savings will be put off reinvesting by low interest rates. They are therefore busily preparing such new products as mutual funds and foreign-currency deposits that promise higher returns,though they carry greater risks as well.

Securities firms, too, have their sights set on attracting new investors to reinforce their management. They are readying a wide array of high-yielding commodities, such as mutual funds and corporate and government bonds. They also expect record-low interest rates to entice individual investors to return to the stock market, and are shoring up their sales force.

Trends in JapanEdited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.