“Two stumbles, three stumbles, four stumbles, five stumbles, six stumbles, seven stumbles, eight falls…this is just too irresponsible.”
- Hatoyama Yukio blasting Prime Minister Aso Taro in 2009 for his inability to make a decision. He used an extension of the Japanese expression, shittten batto. That is literally “seven stumbles, eight falls”, describing a person agonizing over a difficult decision.
ONCE UPON A TIME, the Democratic Party of Japan, the ruling party in the country’s governing coalition, supported the privatization of Japan Post, albeit under different conditions than those adopted during the Koizumi administration. Indeed, the Japanese-language website of Foreign Minister Okada Katsuya, the DPJ party leader during the 2005 election in which Mr. Koizumi won an overwhelming mandate for privatization, still contains the assertion: “Privatization is the path.”
It was definitely the high road to a sound national financial structure that represented the maturation of a system more suited to developing Third World countries than to a nation with the world’s second-largest economy. Not only did Japan Post’s banking and life insurance business suck the marrow out of the private sector, their deposits and premiums were used as a government cash trough. For decades, it funded the pork barrel construction projects to build bridges and roads to nowhere. Roughly 80% of the funds on deposit are still used to purchase government bonds. Having that much money at their disposal is too great a temptation for most governments, which are not avatars of fiscal responsibility to begin with.
There is a JPY 10 million (about $US 106,000) limit on the Japan Post bank deposits. That acts as a type of safety valve to divert the large deposits of retirees and others to other financial institutions, including shinkin banks.
Sengoku Yoshito, now the Minister for Civil Service Reform and National Policy in the DPJ government, was instrumental in writing the Japan Post plank in the 2005 party platform. The guiding principle was a shift from the bureaucracy to the people, and it contained the specific recommendation to lower the limit on banking deposits to JPY 5 million as a way to achieve that. It also called for Japan Post to get out of the life insurance business altogether by 1 October 2007.
The DPJ decided to sell out those principles for a chance at power when it needed the upper house votes of a splinter group of exiled LDP mudboaters who liked the old system just the way it was—the Peoples’ New Party led by Kamei Shizuka.
They got their shot at power–but their Japan Post sellout may well have bought them a ticket to oblivion.
JA editorial
The government’s plan to stymie the Japan Post privatiziation was bad enough, but there was an immediate eruption when word was leaked about their other intentions for the institution. One of the first to object was JA, the national agricultural cooperatives who operate the Norinchukin Bank.
Japan Agricultural News, the JA’s daily newspaper ran an editorial on 9 March titled “Japan Post Reform: A Tyrannical Increase in Deposit Ceilings”. They don’t mind competition from the private sector, but find the idea of going head-to-head with the government unappealing. Here’s part of it in English:
“The government and ruling party are in the final stages of their reconciliation of the Japan Post reform legislation…They are moving in the direction of a large increase in the ceiling on Japan Post bank deposits, and we can only say that is a serious problem. The content of their legislation recognizes the business as on a par with the private sector, yet it has de facto government guarantees. If left unchanged, the entity will have a bloated bureaucracy pressuring the private sector.
“The government has been discussing a reexamination of the Japan Post enterprise, and it’s moving in the direction of raising the limit on its bank deposits from JPY 10 million to JPY 30 million. They are also considering raising the upper limit on their life insurance policies from JPY 13 million to 50 million. Private sector institutions, including the JA group and shinkin banks, are of one voice in opposition to this because the expansion of Japan Post’s business will pressure the private sector. Even some DPJ Diet members say some consideration is due to regional financial institutions….
“Kamei Shizuka, the minister responsible for Japan Post reform, has said, “It is necessary to generate a recovery in deposit amounts to maintain the post office network.” But this government policy would only weaken regional economies instead. It is a far cry from Mr. Kamei’s thinking.
“It would be better to have the Japan Post’s enterprises completely privatized, and to have them compete as a private sector business by creatively expanding their own services. Instead, we are faced with the prospect of Japan Post expanding its business in tandem with greater government involvement. It could be claimed this is a mechanism to vacuum up private sector profits and use them to offset costs. It is clear that private sector financial institutions would be at an overwhelming disadvantage.
“In many depopulated areas, there is only JA and the post office. Twenty years ago, when the deposit limit was raised from JPY seven million to 10 million, the amount of money in Japan Post’s deposits grew at a double-digit rate, while the growth rate for the deposits with JA and the fishing cooperatives plunged to 3.7%…This new plan can only have a serious impact on the overall JA balance sheet.”
Others soon followed
The plan eventually presented by Mr. Kamei raised the ceiling for deposits to JPY 20 million and life insurance policies to JPY 25 million. It was attacked immediately. From Eda Kenji of Your Party:
“The coalition government is conducting a sweeping reappraisal of Japan Post’s privatization. The content is directly opposed to financial principles and the market economy, and I can’t bear to look at it.
“The plan calls for an expansion of the enterprise while the government holds more than one-third of the stock. They intend to raise the limit on deposits to JPY 20 million and to double the amount for life insurance policies to 25 million yen…They will also exempt group company transactions from consumption tax (potentially JPY 50 billion).
“They will be competing with private sector institutions against a backdrop of the strong creditworthiness of the implicit government guarantee. This is unfair, as anyone who thinks about it will understand. Regional financial institutions in particular will be unable to compete with this giant. It is the ultimate in private sector oppression of the straitened business operations of these institutions.
“Based on these profits, the government says it will convert the 100,000 irregular employees to regular employees. They also say more than JPY one trillion in additional funds will be needed to maintain the national postal network. All this will have to be paid for by the citizens in the future. This policy is clear evidence of the essence of the current government–it has no inhibitions about plumping for an election.
“If the enterprise is expanded with 100% government funding, it will crush regional shinkin banks and credit cooperatives. It should have been that the business would be sustained by expanded lending through privatization and the diversification of investments, thereby obtaining profit. Expanding business through the opposite means is diametrically opposed to market principles, however.”
The solon of Koizumian reformers in the LDP, Nakagawa Hidenao, listed the likely problems with the government use of these funds:
- Greater purchase of government bonds
- More funding to troubled public-private partnerships, which often wind up as the new employment destination for retired regional bureaucrats, i.e., amakudari
- More financial support for to companies in difficulty whose stocks are manipulated to create funds for politicians (An abuse dating from the old days of LDP rule)
- Greater investment in enterprises in which the operators have little experience and which private sector financial institutions can’t successfully fund. These become another destination for amakudari bureaucrats.
- The government will continue to find excuses to hold on to its remaining one-third share of JP stock.
Japanese Bankers’ Association Chairman Nagayasu Katsunori doesn’t like the plan either:
Government enterprises should only supplement private sector enterprises….In an emergency, we could expect a large shift of deposits (to the Japan Post bank). This will diminish the financial mediation function in regional economies, and have a large negative impact on the national economy.
Even those DPJ politicians who understand something about economics were appalled. Here’s Furukawa Motohisa, the head of the National Strategy Office and Senior Vice Minister for Economic and Fiscal Policy:
This has serious problems from the perspective of fair competition with private-sector financial institutions….The amount of increase in the ceiling amounts for the bank deposits and life insurance policies will be used as the funds for purchasing government bonds. This must not become a situation that harms confidence in fiscal policy….I have serious doubts this was sufficiently debated and explained.
Mr. Furukawa worked in the Finance Ministry for eight years before starting his political career.
The Koizumi administration’s privatization guru, Takenaka Heizo, found the lack of transparency troubling:
It should be clarified just how large the citizens’ liability will be for this plan. When we put forth the privatization program, they demanded we present detailed figures, but now they have shown no trial calculations whatsoever….This also could lead to serious international friction.
Free speech and mizukakeron
One of the defining traits of the DPJ-led Cabinet in its six months in power has been the absence of any internal communication or consensus, or even a hint that they approached the business of government with a carefully prepared plan other than the one on the seat of their pants. Kamei Shizuka, the minister in charge of renationalizing Japan Post, presented a proposal that apparently caught everyone in the Cabinet by surprise. That lead to the outbreak of a mizukakeron, or water-throwing argument, a term the Japanese use for endless and fruitless discussions. It quickly degenerated into a juvenile display of Who Struck John.
Some wags pointed out that with the Chinese government’s recent crackdown on the subjects acceptable for coverage by the domestic news media, and DPJ Secretary-General Ozawa Ichiro’s internal reign of terror eliminating public dissent from party members, one of the remaining bastions of political free speech in these parts is within the DPJ Cabinet.
From the 24 March Mainichi Shimbun:
Asked by Masuzoe Yoichi in the Diet about Kamei Shizuka’s plan to eliminate the consumption tax for transactions within the Japan Post group, Finance Minister Kan Naoto said:
It’s my understanding that won’t be the case.
At a press conference the same day, Mr. Kamei rejoined:
Of course it will.
When told of those comments Mr. Kan said:
I haven’t heard about it.
The person the DPJ selected to head its government is that fabulously wealthy jellyfish, the country’s first Boy Prime Minister, Hatoyama Yukio. The only constant with Mr. Hatoayama since he took office has been so much waffling he could be covered in maple syrup and fed to the press corps for breakfast.
On 24 March, Jiji Press quoted him about the dispute over Mr. Kamei’s proposal to raise the savings account deposit limits:
The Cabinet hasn’t decided. We’ll have to discuss it now in the Diet.
Not so, said Kamei Shizuka:
I’ve already received the Prime Minister’s consent.
Back to Mr. Hatoyama:
There’s no mistake it is the dominant plan. We can’t very well easily change something the Cabinet has decided, but the Cabinet hasn’t decided yet.
Sengoku Yoshito, who wrote the party plank in 2005 calling for lower deposit limits, said:
I don’t think it’s a good idea to treat so many things as fait accompli without proper discussion. I’m thinking of asking for a Cabinet discussion.
On the use of the funds, he said:
Most of it is already used to buy government bonds. That’s shrinking the overall Japanese economy. It will be very dangerous for us to do that (raise the deposit limit)…The bureaucracy will become bloated, and Japan’s illness will worsen.
The ball’s in your court, Mr. Kamei:
I announced (the plan) after receiving Prime Minister Hatoyama’s consent. It’s already decided…But I’ll listen to all good ideas in the future, either inside the Cabinet or out.
But wait! Here’s the prime minister again:
The amount of the (deposit) limit has not been decided. There must be reconciliation discussions in the Cabinet and elsewhere…He (Kamei) asked for various things. I don’t know whether parts of that answer are factual or not, but I did not actually give my consent.
Mr. Kamei said he also received approval in advance from the Finance Minister, but that’s not how Kan Naoto understood it:
There never was any conversation about asking for my approval for something he wanted to do. He told me he had something in mind during a phone conversation, but I just said, “Oh, really?” The common practice for a proper consultation is to submit a document with an explanation in advance.
Sengoku Yoshito claimed to be equally in the dark:
I haven’t heard anything about it at all….Japanese industry will suffocate if it gets too big. We have to have another national discussion.
When reminded that his proposal was very different from the one fashioned by Mr. Sengoku in 2005, Kamei Shizuka retorted:
That was five years ago. The DPJ has changed 180 degrees. Mr. Sengoku is behind the curve.
He didn’t explain why he thought it was so admirable for a political party to have performed a complete about-face in only five years in the absence of a compelling reason to do so.
Make up your mind
Those close to the prime minister say he is hyper conscious that people think he lacks leadership skills, and that this deficiency is one reason for the Cabinet’s plummeting poll figures.
The internecine sniping became so intense that Akamatsu Hirotaka, the Minister of Agriculture, Forestry, and Fisheries, said on the eve of the second Diet Question Time between party heads, “The Cabinet will collapse if you don’t decide today.”
Having exhausted his potential for dissembling, Mr. Hatoyama made a decision: He accepted Kamei Shizuka’s original plan. The man takes a stand:
A decision was left to me and I decided on it because I thought I had to come to a conclusion quickly.
Just call him Fast Eddie. His reasons?
The savings accounts and life insurance policies will lose JPY 100 trillion in funds over the next ten years, and their financial situation will be extremely critical. I want to maintain some sort of public role for it.
And:
Five years ago, the government’s involvement was huge. Now it’s down to one-third…The schemes are different, so it’s appropriate for there to be differences in deposit limits.
Also:
(The question) is how to create a win-win relationship with local financial institutions, but that is not at all impossible. We’ll have to start devising solutions for that.
No time like the present, eh Mr. Prime Minister? You didn’t foresee this a year ago?
What did Sengoku Yoshito think of the decision?
Jawohl, mein Kommandant!
He explained:
Well, I’m in the Cabinet. That’s how it is.
What did the markets think of the decision? The stock price of the Mitsubishi UFJ banks slumped 1.4% to JPY 490 yen. Sumitomo Mitsui Financial Group Inc., Japan’s second-largest exchange-listed bank, fell 1.4% to JPY 3,090. Number three Mizuho Financial Group slid 0.5% to JPY 185.
Thus the center-left government of the DPJ staggers toward the renationalization of Japan Post. They’ve also withdrawn plans to privatize the Development Bank of Japan, which is now wholly owned by the government, as well as the Shoko Chukin Bank, which provides small business loans.
Run it up the flagpole and salute
Then there’s the elimination of the tolls on expressways, which effectively renationalizes them as well—the government has to pony up the money and bureaucrats will be needed to oversee their operation. (That’s why they’re keeping the gasoline surtax they griped so much about two years ago.) There were also plans to privatize the National Printing Bureau, which produces banknotes and stamps. It was made an incorporated administrative agency in 2003, but that seems to be a dead letter too. It was once part of the Finance Ministry, but the ministry’s civil servants who landed post-retirement amakudari jobs there were unhappy with that arrangement.
Kamei Shizuka wasted no time in reminding Japan Post that it was part of the government again. On the 27th, he called on the organization to be “aware of its public mission”, to fly the flag on public holidays, and on 20 April, the day the postal and communications ministry was created in 1934, to sing the national anthem.
The People’s New Party Secretary-General Jimi Shozaburo explained:
The government holds Japan Post stock, so this should be a matter of course for them as citizens.
The new reactionaries
Meanwhile, Minister of Internal Affairs and Communications Haraguchi Kazuhiro announced the government’s plan for using those JPY 300 trillion in assets in deposits and insurance policies. He said the government will “invest it overseas and for building domestic infrastructure”.
Eda Kenji couldn’t resist from crowing, “I told you so.”
He referred to a post he wrote on his blog in November 2009, in which he said:
Won’t this become once again a company to supply funds for new fiscal investment schemes? It will become the underwriter for the immense national bond issues of the Hatoyama administration, and the money (new financing) used for pork under the veil of regional development and a small business policy. It will create a new structure of vested interests. The president and vice-president are veterans of the bureaucracy, and not only that, of the Finance Ministry. Therein lies the significance of their appointment.
He continued:
I thought this would happen when those two (the president and vice-president) were appointed. None of that JPY 300 trillion will flow to the private sector. It will be eaten up by the interests of politicians and the bureaucracy.
He concluded:
This is the second coming of a very old style of politics from more than 20 years ago.
Pity those who thought the DPJ was serious about reform, though people who were paying attention saw this coming a long time ago. They’re a soft-to-hard left party whose primary interests are political power and strengthening the central government, which for them has a synergistic effect. If preaching the gospel of reform helped them win an election, they stepped right up to the pulpit. Now they get to do what they really want to do, even though 70% of the public was on board with privatization five years ago.
A Pyhrric victory?
One positive that might emerge from this charade is hastening the disintegration of the DPJ itself. The failure–and general incompetence–of the dysfunctional DPJ government has prompted politicos to start getting serious about a political realignment that was inevitable in any event. Yosano Kaoru has now left the LDP and plans to form a new party later this week with cultural conservative Hiranuma Takeo, who was thrown out of the LDP for his opposition to Japan Post privatization. One, and perhaps two new parties of reform-minded non-LDP politicians will be born in the near future. (I’ll have more on those shortly.)
Other maneuvers are being conducted in plain sight. On 30 March, former DPJ senior advisor Watanabe Kozo, who has been critical of former ally Ozawa Ichiro, was the guest at a Tokyo restaurant of Kato Koichi, former LDP secretary-general, and Yamasaki Taku, former LDP deputy secretary-general (who were two-thirds of a group of former young Turks that also included Koizumi Jun’ichiro) to discuss political alignments now that the cement is again wet.
He later said for public consumption:
The most pitiful people in the ruling and opposition parties now are Prime Minister Hatoyama Yukio and LDP President Tanigaki Sadakazu. While both are the heads of their parties, neither one has any presence or the authority to make decisions.
According to those at the gathering, however, he also said:
Secretary-General Ozawa Ichiro leads (the prime minister) by the nose, and (the prime minister) is incapable of making an independent decision.
He made a prediction the next day:
A significant political reorganization will occur after the upper house election, and a new era in politics will be born….The DPJ is not fulfilling (the people’s) expectations. There will also be no future for the LDP.
That’s an excellent illustration of just how quickly political winds can shift. In the 26 December/2 January yearend issue of the weekly Shukan Gendai, when it had become clear to everyone that Hatoyama Yukio was as useless as a bag of wet flannel, Mr. Watanabe blithely brushed aside concerns by saying that either Kan Naoto or Ozawa Ichiro (!) could step in and take his place. His prediction of a big DPJ win in the summer upper house election came off as rather cocky.
Three months later, that swagger has disappeared.
One can imagine how the news media would respond to the inevitable disarray such a scenario will engender, particularly from those overseas who can’t be bothered to do their homework. Those who wish for a better day in Japanese politics, however, can only hope his prediction comes true.
Afterwords:
Mr. Sengoku is still upset at the budget presented by the Cabinet of which he is a member:
The only time we’ve had this sort of budget before is when military expenses mushroomed at the end of the war….This shouldn’t be possible to begin with. It elicits a sense of unease that makes me wonder if this country will survive. From an investor’s perspective, it becomes even more reason to consider selling one’s holdings (in Japanese securities).
Here’s a look at Japanese deficits over the last decade. Mr. Koizumi started to get a handle on them after helping the banks through the crisis of non-performing loan portfolios:
2001: 21.8 trillion
2002: 28.0 trillion
2003: 28.4 trillion
2004: 20.5 trillion
2005: 14.8 trillion
2006: 9.2 trillion
The lowest deficit since 1992 came during the Abe/Fukuda administrations the next year.
2007: 6.4 trillion
But then they started to rise again:
2008: 16.1 trillion
2009: 40.6 trillion
This year, it will be more than 44 trillion yen.
Said one Japanese commentator last year, after the DPJ took power:
An administration (functioning within) the existing systemic fatigue cannot control (the) Kasumigaseki (bureaucracy)…the DPJ government does not yet understand how frightening Kasumigaseki can be. They will encounter different kinds of resistance from here on out. The ability of the DPJ to lead government will be tested. If, during this trial, they come up with a request for JPY 50 trillion in deficit financing bonds, I have to wonder if something’s wrong with them.
It was JPY 44 trillion. That’s close enough to wrong, isn’t it?
Mr. Sengoku compared Japan’s financial situation to that of Greece.
Isn’t it time to find some adults to put in charge before things really fall apart? Greece might yet be able to rely on other EU members to help. Japan is likely on its own, all the more so considering the Obama administration’s predisposition to blow off American allies for reasons most Americans can’t understand.
