Summary
The appointment of Jiro Saito as Japan Post Holdings President indicates plans to draw on the Postal Savings and Insurance schemes to bridge ever widening budget gaps with Fiscal Investment and Loan Program (FILP) funds and massive JGB purchases, turning back the clock on fiscal and financial market reforms a decade or more.
Analysis
It has been said that politics makes strange bedfellows, and the appointment of Jiro Saito to President of Japan Post Holdings by his former nemesis bears credence. Clearly, the Hatoyama Cabinet needs a loyal, pragmatic and capable person with adequate public and private sector experience to manage the world's largest savings and insurance schemes in smooth coordination with its policy priorities. In Jiro Saito, the DPJ-led government has, quite ironically, found a perfect fit for the role.
Just about every aspect of this appointment has left political commentators and industry observers shaking their heads. For starters, the law very clearly stipulates that the power to appoint the President of Japan Post shall be delegated to the Minister of Internal Affairs and Communications, Hon. Kazuhiro Haraguchi, who claims that he was not informed prior to the public announcement. Moreover, the appointment was ostensibly made by the State Minister for Postal Affairs and Financial Services, Hon. Shizuka Kamei, who actively campaigned for Saito's dismissal from the Ministry of Finance just 15 years ago.
It is clear that Jiro Saito has a close relationship with DPJ Secretary General Hon. Ichiro Ozawa and that the latter brokered the deal. Some reason that a weak relationship between Postal Affairs and Financial Services Minister and the Japanese Federation of Business Organizations (Keidanren) left the Hatoyama Government few options, but this is likely not the case. Rather, the appointment is a calculated move by a master political strategist seeking to unlock the treasure chest containing the world's largest pool of deposits and liquid assets to finance a pork barrel political spending spree on a scale that might even make old guard LDP politicians blush.
In fact, any qualified private sector candidate recommended by Keidanren or the Japanese Bankers Association (JBA) would find it difficult to backtrack on a decade of reforms that sought to reign in distortions in the financial markets attributed to the Postal Savings and Postal Insurance schemes and the Fiscal Investment and Loan Program (FILP) , sometimes referred to as a "second budget". With budget requests having risen from 88 trillion in 2009 to 95 trillion for 2010 and tax revenue falling from 49 trillion to 44 trillion over the same period and the need for a massive injection of public funds for Japan Airlines, the Hatoyama Government is stuck between a rock and a hard place. Clearly, everyone in the Cabinet realizes the need to tap the FILP in order to fulfill spending commitments and ensure smooth uptake of next year's record auction of up to 50 trillion in new JGBs.
Looking back at the past decade, a series of fiscal and financial market reforms, including postal privatization, have succeeded in stemming the flow of FILP loans by 40% from a peak of 40.5 trillion yen in 1996 to just 13.9 trillion yen in new loans for 2008. Likewise, the outstanding balance of such loans has fallen over 50% from 417.8 trillion in 2000 to an estimated 205.2 trillion in 2009. Banks and Big Business universally applaud such reforms, which reduce the role of government in industry and result in freer, more competitive financial markets.
While it is no wonder that few prominent banker executives or captains of industry would be willing to step back over this line, it is ironic that the president of Japan's largest futures trading exchange has agreed to do so. Perhaps another saying, "Once a bureaucrat, always a bureaucrat," holds equally true.
