The privatization of Japan Post [see ‘Whale in a pond’ makes a break for open waters] will create the world’s largest bank by assets, although the real cause for celebration should be the promised end to the curse of pork-barrel politics that has involved savers’ money being channelled through government bonds into expensive and often quite useless public works projects. Outgoing prime minister Junichiro Koizumi can be rightly proud of this hard-won reform but market participants in Japan are already expressing concerns about how the privatization is being handled and what kind of an investor the new postal savings bank – Yucho – will be.
Yucho itself has made ambitious profit forecasts, saying it will make ¥428 billion ($3.6 billion) by 2008. There’s no baseline figure for comparison but the figure seems high given that the bank is adding to rather than subtracting from its roster of more than 250,000 employees; it will not immediately roll out any new services; and it does not seem to have a clear strategy in place for diversifying away from increasingly risky inflation-linked products. Low-yielding government bonds account for more than half of the bank’s portfolio, and it is unlikely that Japan’s comparatively small high-yield bond market will be able to support all of Yucho’s demand for higher-yielding securities.