The Debut of Japan IV


This week Japan joined the real world.

For despite its two eras of 150 years modernization – pre-World War II and post-1950 — which followed the earlier centuries of closure, during which it became one of the world’s most powerful economies, the process had its peculiarities. They distinguished the Japanese economy, and indeed, its society, from the other industrial, and now post-industrial societies. The names of its state capitalist institutions matched those of the West, but any investigation t proved they functioned in quite different ways.

But a decade and a half ago, in one of those decision-making processes that so mystify foreigners, Japan, Inc. decided that it would have to totally overturn the peculiar system that had brought it such success. The Japanese faced growing integration and competition with foreign economies and, rising from the total devastation of World War II, began to be a capital exporter. With the turn of the century under an exquisite politician, Junichiro Koizumi, Tokyo began the painful process of becoming more like its foreign collaborators. [To Koizumi’s everlasting credit, he assumed the leadership role, fought against bitter opposition and, indeed, calumny, then at the height of his power and success, walked away – one of the few times successful leaders have had that good sense.]

A giant step in this process took place Nov. 4th when Japan Post Holdings launched the privatization of one of the largest accumulations of capital in the world. The 144-year-old government Japan postal system, originally modeled after the state corporations in France and Germany, sold shares in Japan Post Bank, which holds roughly Y180 trillion [$1.5 trillion] of millions of Japanese household deposits, and Japan Post Insurance. Domestic and foreign buyers were so excited that the latter – where the highest dividend return is expected – surged by as much as 56% over initial offerings.

Privatizing the banking and insurance operations of a network of 24,000 branches and 27,000 ATMs reaching into every corner of the islands country is a gigantic effort. The postal bank operations traditionally had put savers’ deposits into Japanese government bonds with a nominal 0.315% interest rate. Less than Y1 billion of the bank’s Y207 trillion portfolio had been invested in domestic companies and the new managers suggest that figure could go to Y2 trillion. The near monopoly the postal system held on Japanese savings meant 51% of individual Japanese are in bank deposits while the US figure is about 12 per cent.

For years Japanese planners have looked hungrily at investment procedures and the generally higher interest rates abroad. One aim of the reordering of the post office is to invest widely abroad. Japan Post Bank President Masatsugu Nagato said the country’s largest financial institution would now go “superglobal” with the help of his “magnificent seven samurai”, a group of foreign investment consultants who will soon be expanded to 30. It is ironic, of course, that Japan’s decision to launch out into world capital markets comes at a time when a general world economic downturn and “quantitative easing” by the U.S. Federal Reserve and other central banks has reduced competitive investment rates worldwide.

But Nagano says he is ready now to push its $500 billion investment fund towards global risks. Describing his strategy as one of “survival”, Nagano said, “We are going to invest in the world market: deep, various and wide. We want to be one of the very sophisticated and largest institutions for global investment.” Japan Post Bank has created a “satellite portfolio”, a special fund intended to diversify the mix of the bank’s investments to which Y48 trillion has already been allocated, with plans to increase the portfolio size to Y60tn by 2018.

It almost goes without saying that Japan’s leadership is taking on new risks, but– as so often in Japanese decision-making, which has been thoroughly vetted and planned. For the rest of the world, it can only be a warm welcome to its new intimately concerned player.



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