Not only are the two Japan Post subsidiaries related to the mails less profitable than the bank and the insurance company, but they also, according to the Yomiuri, owe back-taxes for Japanese fiscal year 2008, halfway through which the system was privatized:

Following investigations by the Tokyo Regional Taxation Bureau into the two companies, the bureau notified the firms of their unreported earnings for the business year ending March 2008, according to sources.

The companies are expected to be levied about 9.2 billion yen in back taxes, including penalty, corporate and local taxes, the sources said.

The total undeclared income reportedly is more than 20 billion yen.

…

It also said Japan Post Service and Japan Post Network logged 3.53 billion yen and 5.69 billion yen, respectively, to pay for taxes, on the assumption that the two companies would likely have to pay back taxes.

Although Japan Post Group said it had a “difference in understanding” with the bureau, the group said it would abide by the notification.

Well, you know, in Japan, these things are all about perspective.

The Japan Post family of companies released its first financial statements for a full fiscal year since privatization–well, more like partial governmental divestiture, but in today’s climate, anything that even resembles a shift in the direction of less federal control of a major industry feels like a refreshing change–and the numbers are mixed:

In the consolidated financial statements for J-FY 2008 Q4 that Japan Post released on 22 May, current income (corresponding to sales revenues) was JPY 19.9617 trillion, current profits were JPY 830.5 billion, and net profits (for the quarter) were JPY 422.7 billion. Since privatization in October 2007, this round is the first release of financial statements for a full fiscal year, and while all four companies operating under the Japan Post umbrella ultimately secured balances in the black, the three remaining companies when Japan Post Insurance is excluded fell short of standing projections. CEO Yoshifumi Nishikawa indicated in an interview that he intends to stay on the pitcher’s mound until the two financial subsidiaries [the insurance companies and the savings bank] are in a condition to list their stock, which is planned for as early as J-FY 2010.

It’s the two finance-related arms that are making most of the profits; the holding company wants to jack up the contribution from the remaining two companies, one of which runs the post offices and the other of which runs the shipping and courier logistics of the old postal system. The Mainichi has an English version here, which scrambles the order of the original Japanese article but doesn’t omit much of the information.

Former Prime Minister Jun’ichiro Koizumi, who made privatization of Japan Post his line in the sand in the run-up to the 2005 snap election, isn’t pleased with current Prime Minister Taro Aso’s performance on the subject:

On 12 February, Former Prime Minister Jun’ichiro Koizumi of the LDP made his greetings at a gathering held at party headquarters to call for progress in Japan Post privatization and roundly criticized a series of pronouncements by Prime Minister Taro Aso related to Japan Post privatization: “If there’s no trust in the prime minister’s statements, we won’t be able to put up a good fight in elections.”

Koizumi censured the prime minister for his statements, saying, “I’m flat-out disgusted–to the point that I want to laugh more than get angry.” He indicated that “the way things have been recently, it makes me wonder whether the prime minister hasn’t since before been taking shots at people who are trying to do battle (in the lower house election).”

Among other things, Aso has contended on NHK that the apportionment of the privatized Japan Post has not been settled–which is to say, people knew Japan Post was to be privatized, but not that it was to be divided into four subsidiaries (retail bank, insurance, distribution/conveyance of letters and parcels, and window services/storefront operations) under the holding company.

I’m not sure how it’s possible to think such a thing. The structure of the new Japan Post was debated, and debated, and debated. Japanese news yak shows, which love flow charts, diagrammed it. If there were people who didn’t understand that the proposed structure was a sticking point, that’s their problem.

Of course, the bill that passed was a compromise, meaning that those of us who supported privatization rather than “privatization” were given cause for worry. The government is supposed to spin banking and insurance off completely by 2017 and to retain a one-third stake in the postal operations, but a lot can happen in a decade. From the moment the privatization bill was drafted, its lack of provisions against mutual shareholding raised fears that the four new companies would find a way to remain shackled to each other. There was a bill introduced in 2007 to freeze the selling off of stakes and assets; it passed the upper house, which is in control of the opposition. And the bank (Yucho) and insurance (Kampo) arms have been pushing to compete in the marketplace with their private counterparts, which lack the advantages of continued government stakes and brand assocation.

Yucho is also the world’s largest bank by assets. Together with Kampo, it holds roughly a quarter of Japanese household assets (lots of federal bonds, too). But having been a branch of the government and then a semi-public corporation gives Japan Post Holdings and its hatchlings additional potential for collusion and sweetheart deals. The selling off of group of hotels owned by Kampo was canceled after allegations that the bid was far too low. The postal part of the operation has been busy, too. Japan Post Holdings had existed for approximately three nanoseconds when it made a deal with Nittsu (Nippon Express) to consolidate parcel services. The new brand name (it’s the Obama Era now, so maybe イエス郵ペリカン?) debuts later this year. There was serious discussion of mutual shareholding, too. Who wouldn’t want to get in on infrastructure initally set up by the government and still bearing its imprimatur?

To be competitive without falling back on their state-controlled history, the service companies are going to need to streamline their operations, but the closures and firings that would be necessary to do so have been hotly contested. The old postal service had unprofitable outlets throughout rural Japan, but they became not only embodiments of its mandate to serve all citizens equally but also fiefdoms for ill-supervised local postmasters, who repaid the LDP by drumming up votes in the countryside to help keep it in power. The LDP has more free-market supporters than the opposition, which isn’t saying much to begin with, but many officials are wary of biting the hand that has fed them for so long.

There hasn’t been a high-profile story of defective Chinese goods for a little while, but the trend toward quietly pulling them is continuing:

One by one, convenience stores and supermarkets are making moves toward replacing Chinese food imports with domestic products and non-PRC imports. 99 Plus Corporation, which developed the everything-99-yen convenience store, will phase out frozen foods from the PRC starting this month and replace them with domestic equivalents. Ito Yokado and Inageya have switched from PRC-produced matsutake mushrooms to those from Canada. In each case, the trend towards consumers’ avoiding Chinese products because of concerns over safety is noticeable, and it is possible that other retailers will make similar moves.

99 Plus Corporation will gradually stop offering frozen foods from China such as pilaf and gyoza dumplings in its 800 Shop 99 stores nationwide. PRC products have made up about half of the frozen food items it offers, but it has investigated which items have ready substitutes and will replace most of them with domestic products. In order to maintain its everything-99-yen pricing, it will decrease per-package quantities in cases where supply costs increase by a wide margin.

The stores in question move a lot of food.

*******

One of the tie-ups the new Japan Post conglomerate has already scored is with Nippon Express (Nittsu) for package processing. Yu-Pack has an extensive delivery network for small parcels, and Pelican has its strengths in the corporate market. The brands will remain separate, but the companies hope to combine their logistical advantages to their mutual profit. (Naturally, there may also be mutual shareholding. *sigh*) The post and package arms of Japan Post have the lowest profit potential, so this first large-scale partnership will be important.

I suppose that, given all I wrote about Japan Post privatization while it was being haggled over, it’s odd that I didn’t post anything about it on Monday, when the privatization plan went into effect. But of course, what’s going to be interesting is what happens in the coming months and years; Monday was an important step, but not much happened that we could draw conclusions from. The single biggest problem is that the government still holds all the stock, with divestment from the financial services companies to be completed by 2017. But there’s a lot else to consider. Here‘s the Nikkei editorial:

Since the former national rail service became JR twenty years ago, this is the first large-scale privatization. The postal service, which began as a public institution 130 years ago, became a privately held enterprise under the Japan Post holding company on 1 October. The holding company came into the world a behemoth group with four companies (postal processing, post offices, postal savings bank, and life insurance) under its umbrella, total capital of 338 trillion yen, 24000 post offices, and 240000 personnel.

What cemented the privatization was public opinion, which pressed for postal reform that moved “from public to private.” In the election after the “postal dissolution” Prime Minister Jun’ichiro Koizumi decided on, the LDP gained an overwhelming majority in the lower house. [Koizumi called a snap election and flatly told voters that he regarded it as a referendum on Japan Post privatization.–SRK] This could be regarded as a vigorous rejection of the public investment [system] that, using trust in the government as a shield, corralled capital from postal savings and life insurance and led to bureaucratic bloat. We must not forget that that was the starting point.

…

The postal savings bank will be a sales outlet for housing loans from some regional banks, and also aims to fund its own entry into financing and foreign currency deposits. Financial institutions have cautioned about pressure on the private sector [that Japan Post Holdings could exert by exploiting its still-strong connections with the government], but on the other hand, there have been gestures toward seeking tie-ups with a clear eye on the post office network. What is more important than anything else is that conditions for fair competition between the privatized Japan Post and existing financial institutions be preserved. The Japan Post Privatization Committee, which will review these expansions of operations, has a lot of responsibility. The Finance Agency and the BOJ should also monitor its health unsparingly through inspections and similar measures.

What both internal and external investors will be paying attention to is where capital is routed by the two financial institutions after privatization. Under the shadow budget system, the postal savings bank had become a dumping ground for mass-issued federal bonds. It will be pressed to diversify deployment of capital into appropriate asset and debt management. The plan is to decrease the postal savings account balance (182 trillion yen at the end of August) moderately but steadily.

The Asahi editorial focuses more on how privatization will affect customers:

The most serious is poor legal compliance. Japan Post has been plagued by endless embezzlement and other scandals involving postal workers. Illegal business practices are rampant in postal insurance operations–postal insurance policies are often sold without the legally mandated direct meeting with the purchaser. In fact, compliance has been so poor, the Ministry of Internal Affairs and Communications has given the postal insurance service a record-low quality rating of “D.” Recent evidence has also emerged that employees unlawfully destroyed documents that legally should have been preserved.

These episodes point to serious corporate ills. The new Japan Post management must ensure it competes with industry rivals in a legal and fair manner. The first test for the postal giant’s compliance will be whether it starts properly explaining to customers the risks involved in its financial products.

With privatization has also come the end of government guarantees for postal savings and insurance policies–yet Japan Post will still be selling a wide range of risk-carrying financial products, such as investment trusts.

For many years, people have entrusted their savings to government-guaranteed postal accounts. Many have no understanding about risky financial products and the fact that investors can lose their initial investment principal if the market turns sour.

That makes it imperative for Japan Post to clearly offer detailed explanations about such risky investments to customers. Should troubles emerge over sales tactics, this would damage consumer trust–its reputation for reliability–and have a serious effect on its bottom line.

That’s a genuine worry. Japan has a very good educational system, but financial products are complex things, and people’s trust in known brands has enabled a lot of salespeople to put one over on a lot of consumers. It’s people’s responsibility to assess risks as best they can before pouring their money into an insurance policy or what have you; however, I agree that Japan Post’s overseers need to be extra careful to make sure representatives are not using verbal legerdemain to imply that investments are still protected by the government in ways they are not.

Wow. Shinzo Abe can’t win for losing. Japan’s opposition parties have been calling vociferously for his resignation for months. Yesterday he announced his resignation…and they’re criticizing him for it.

Democratic Party of Japan President Ichiro Ozawa criticized Prime Minister Shinzo Abe for his abrupt resignation announcement on Wednesday.

“[Abe] had been scheduled to answer questions from party representatives about his policy speech at the Diet today, but he suddenly announced his resignation,” Ozawa said at a press conference, adding that it was the first time in his political career of 40 years that he had witnessed a prime minister resigning within days of delivering a policy speech in the Diet. “To tell you the truth, I’ve no idea what was going through Prime Minister Abe’s mind before he made the announcement.”

Ozawa denied media reports that he had repeatedly rejected requests from Abe to hold talks with him. Ozawa said the first request from Abe came Wednesday morning through Liberal Democratic Party Diet Affairs Committee Chairman Tadamori Oshima to DPJ Diet Affairs Committee Chairman Kenji Yamaoka.

Well, it was pretty abrupt. I remember reading the report yesterday and thinking, What was it that made him decide this today? This morning he announced that he’s going into the hospital to have gastrointestinal problems diagnosed, but commentators are divided over whether that was as big a factor as it’s made out to be. Abe has exhausted all his political capital for the moment, but he’s young. It’s been rumored for ages that LDP higher-ups had been urging Abe to step down while he still had some dignity and could make a new bid for the prime minister’s slot after a few more years of seasoning.

Who knows? Maybe that could still work. But as I see it, Abe has one major problem that no amount of experience is likely to correct: he lacks charisma. Utterly. Koizumi was the sort of man who commanded attention. If you were cooking or reading with the television on in the background, you stopped what you were doing and looked up when he started speaking. He was a natural focal point, in a way that went deeper than his haircut and Elvis fixation and all that stuff. When he staked his job on the passage of the Japan Post privatization bills, it was a serious showdown. His sternness and conviction had dimension and heft. You felt it, even when he was making compromises left and right in practice.

By contrast, when Abe staked his job on the passage of the extension of the anti-terrorism law, it was hard to get worked up (and I say that as a WOT-supporting American). Abe is clearly a skillful operator when it comes to negotiating with other politicians and playing them off one another–one does not become Prime Minister of Japan otherwise–but only to a certain point. That final promotion to political head of state brought the Peter Principle into play with a vengeance. The issues Abe’s administration has had to contend with–evolving Japanese nationalism, relations with China and the Koreas, the extension of the MSDF mission, tankerloads of corruption scandals–require an alpha wolf. Even in consensus-loving Japan, people get the heebs when it seems as if there’s no one in charge in the cabinet. Abe simply doesn’t project authority.

On Wednesday, even Liberal Democratic Party Diet members close to Abe sternly criticized him after his resignation sent shock waves through the party.

“I’m disappointed in him as he’s tossed out his administration,” one of them said.

“How does he see the responsibilities of a prime minister?” another asked.

At a press conference in Sydney on Sunday after the Asia-Pacific Economic Cooperation summit, Abe indicated that he would devote his energies to extending the refueling mission by the Maritime Self-Defense Force in the Indian Ocean, even at the cost of his job.

He gave the impression that he was determined to do his best to fulfill his international pledge of extending the MSDF mission by holding firm to his post.

In reality, however, those who took the prime minister at his word were mistaken.

One temporary advantage his successor will have is that he will have a ready excuse for seeming unprepared and needing a little time to find his balance. The opposition won big in the recent upper house election, but that wasn’t the result of affection for the DPJ as much as it was the result of disgust with the LDP. Unfortunately, I’m not sure there are any LDP players in the running who can project moxie as leaders while making the compromises necessitated by the new balance of power in the Diet. I’ve always liked Yasuo Fukuda, who like Abe is a former Chief Cabinet Secretary. He also has experience in foreign affairs and came off as tough and clear-headed when delivering the Koizumi cabinet’s policy statements to the press. He resigned amid the Social Insurance payment scandals of a few years ago, but there don’t seem to be any contenders for power who are unsullied by scandal these days. We’ll see soon enough who gets the nod.

Added on 14 September: Speaking of no-charisma public figures, Ann Althouse links to this whinefest by Demi Moore about how she can’t get good parts because Hollywood doesn’t know what to do with older women:

The 44-year-old told a magazine: “It’s been a challenging few years, being the age I am. Almost to the point where I felt like, well, they don’t know what to do with me. I am not 20. Not 30.

“There aren’t that many good roles for women over 40. A lot of them don’t have much substance, other than being someone’s mother or wife.”

Moore refurbished herself into a wrinkle-and-flab-free android–check out the two photos, and notice how spookily vinyl-ish she looks in the more recent one–but didn’t address her failure to translate the bubbly, mischievous charm she projected during her Brat Pack days into adult terms.

Surprise! It’s Abe.

I mean, the next president of the LDP and therefore Prime Minister of Japan will be Shinzo Abe. He got 66% of the vote. Of course, that’s internal. The public has been ambivalent, despite Abe’s Clinton-ish way of addressing himself to the average middle-class citizen and even as reports hammered away at the near-inevitability of an Abe win.

It now remains to be seen how his “beautiful country” plan will take shape. He’s promised to deepen ties with the US while repairing relations with the PRC and the Koreas. Sounds good, but it’s hard to tell what concrete approach he plans to take. He’s been one of the highest-profile members of the Koizumi administration to make pilgrimages to the Yasukuni Shrine, which is hardly a way to endear oneself to the rest of East Asia. He’s also in favor of amending the constitution, and there’s little doubt he’s referring to Article 9 (which contains the non-aggression clause). How far does he want to go in restoring military capability to Japan? No one’s sure.

Economically, the guy’s a wild card, too. Koizumi was an economic liberal from the get-go; he brought in Heizo Takenaka and, as much as possible, gave him carte blanche when it came to banking and finance reform. The bills for privatization of Japan Post ended up going through a predictable defanging process on the way to ratification, but Koizumi was willing to draw a line in the sand over them. Abe wants to control deflation, doesn’t think the Allied military tribunal that sentenced Japanese war criminals (yeah, I’m begging the question there…you know what I mean) was just, and doesn’t seem to want schoolchildren learning about comfort women during World War II.

Since it’s not clear what his prime policy directives are, it’s not clear what his deal-breakers are. He’s obviously pretty nationalist by personal conviction, but he lacks the long-standing network of powerful connections to make it likely that he’ll be able to push through controversial pet proposals. He doesn’t seem to have the force of personality to convince people to put aside their doubts, but he will need allies–the LDP is not in the most secure position itself. We should begin to see pretty rapidly what will be the driving force behind his policies when his beliefs hit reality. You can bet that the rest of East Asia, in addition to the Japanese public, will be watching.

Okay, Jun’ichiro Koizumi isn’t technically a lame duck because he’s leaving his post as head of state by choice, but anyway….

The news outlets here, naturally, have been keeping close watch on how things are developing within the LDP, given that Prime Minister Koizumi plans to step down in September. Most of the updates are pretty boring, so I haven’t been commenting on them. The Yomiuri has a nice summary of things to date up today, though:

Even members of the Mori faction, headed by former Prime Minister Yoshiro Mori, which has managed to maintain a semblance of unity, are having difficulty reaching a consensus on fielding one candidate in the election, indicating that the influence of the faction on their membership is declining.

At a press conference Friday, LDP General Council Chairman Fumio Kyuma said it was no longer in agreement with the recent trend for factions to choose candidates or take members’ opinions into consideration to field a single candidate, referring to the failure of the Mori faction, the largest in the party, to reach an agreement on fielding a single candidate.

Chief Cabinet Secretary Shinzo Abe and former Chief Cabinet Secretary Yasuo Fukuda of the Mori faction are seen as increasingly likely to run in the LDP presidential election, which could signal a split of the faction. But the Mori faction may not be the only faction that will have two candidates competing for the top LDP post.

Oddly, the article doesn’t mention that Koizumi himself was once a member of the Mori faction; his relationship with his former mentor has been strained at times. (Mori ticked the Prime Minister off by commenting against the perceived rashness of his threat to dissolve the lower house last year over Japan Post privatization.) Koizumi has been signaling that he wants factional string-pulling to be kept to a minimum in the selection of the next party leader:

“It’s no longer easy to unify (a factional candidate). The old LDP is gone,” Koizumi told reporters Tuesday night. “There is no way to stop them if they wish to run.”

The comment was widely viewed as a move to keep former Prime Minister Yoshiro Mori in check as Mori was moving to select a candidate who will have the unanimous support of his faction.

Both Abe and Fukuda are members of the Mori faction, to which Koizumi once belonged.

…

Mori had apparently wanted to avoid rivalry between Abe and Fukuda as it could split his faction, and thus chip away his clout.

Whatever you may think of Koizumi’s policies, the man has charisma; few other politicians gunning for the LDP presidency and prime ministership do (though I’ve always liked Fukuda and was disappointed two years ago when scandal forced him to resign as Chief Cabinet Secretary). Many of Koizumi’s brash promises of reform have been abandoned for the sake of political maneuvering, and those that have gone through have usually been watered down. There’s a lot of political time between now and September, and whether Koizumi’s approach will live on after him remains to be seen.

You can bet that when the US and the PRC have a high-level meeting, we hear all about it here in Japan. The top story in the Nikkei‘s evening edition was “Failure to connect on concrete issues at US-China Meeting.” The information about the meeting itself was basically the same as what we’re seeing in the English-language media:

Hu sat down with President Bush on Thursday for what both sides described as constructive talks despite a lack of movement in differences over the Chinese currency or on how to resolve nuclear disputes with Iran and North Korea.

In a dinner speech to the U.S. Chamber of Commerce and other business groups, Hu acknowledged “differences and even frictions” in U.S.-China relations. But the Chinese leader said he and Bush agreed to take steps to move forward to a more constructive and cooperative relationship.

“I certainly look forward to a future China-U.S. relationship that is more stable, more mature and developed on a sounder track,” Hu said in a question-and-answer session after his speech.

Prime Minister Koizumi’s take has been posted as a quickie:

Prime Minister Koizumi spoke to the press corps around noon on 21 April about the US-China summit, at which no material progress was made on issues such as DPRK nuclear development and yuan revaluation [the original says “revolution”–SRK]: “Nations have their respective ways of thinking. They will not necessarily agree on everything.” Chief Cabinet Secretary Shinzo Abe spoke to a press conference about the valuation of the yuan. “What’s desirable is the kind of flexibility that reflects the fundamentals of the Chinese economy,” he indicated.

Ooh, speaking of reflecting economic realities, the potential problems with Japan Post privatization are getting more play as the holding company’s operations are gathering steam for real. The FTC is not pleased. Japan Post’s advantages over entrants into its markets have been discussed in more detail before, but the Asahi‘s summary homes in on some of the major problems with mail delivery specifically:

The Fair Trade Commission took shots at Prime Minister Junichiro Koizumi’s vaunted postal privatization project, saying the plan in its current form will give the behemoth Japan Post an unfair advantage over private-sector rivals.

In a report released Friday, the anti-monopoly watchdog pointed out a number of items that needed a review, from Japan Post’s vast delivery network to parking spaces.

…

But a number of companies that have entered the business are limited to deliveries during certain time frames and at certain fees. That is because companies intending to start regular mail delivery services are required to set up a huge number of postal boxes and ensure uniform services in all corners of the country.

But many companies cannot afford to do so.

The FTC’s report said Japan Post will have a huge advantage over private companies if it retains its monopoly over ordinary mail delivery services and enters other fields, such as international deliveries of parcels and other items, as planned.

Under the watered-down postal privatization bills passed last year, Japan Post can operate postal and financial services under a government-funded holding company. The government is to gradually decrease the level of its funding.

The FTC’s report said current regulations, such as companies ensuring uniform services all over Japan, must be abolished to allow newcomers to start regular mail deliveries.

The report also said parcel delivery companies and international distributors should be allowed to use, for a fee, Japan Post’s postal delivery network, which covers all parts of the country, after privatization.

Today’s lead editorial in the Nikkei is about the post-privatization Japan Post, which quietly began operating yesterday. The information isn’t new, but it’s a good reminder of what’s at stake:

Despite being labeled “privatization,” the changeover will in real terms leave, in October 2007, operations still under state control–the government holds 100% of the stock of the holding company under which the mails, window services, Postal Savings, and Postal Insurance subsidiaries will be arrayed. There’s a real danger that, if while the government’s interest is still strong it will keeps adding new businesses, it will not be in fair competition with private enterprises. When the time comes to investigate the introduction of new business by the privatized corporation, we call on the privatization committee to consider this point thoroughly.

For the gajillionth time, the Nikkei editors also call upon the government to sell off its controlling interest ahead of schedule.