Japan's postal shake-up approved

Mr Koizumi (right) said it was a political 'miracle'

Japan's upper house has approved a bill to privatise the country's post office, in a key victory for Prime Minister Junichiro Koizumi.

The legislation is the central plank in Mr Koizumi's plans for economic reform.

Many in his own party had opposed the bill, but Mr Koizumi won a snap election and increased his majority, replacing opponents with supporters.

Post office reform will create a private sector financial powerhouse with trillions of dollars in savings.

The final hurdle had been the upper house of parliament. It was this house which voted down an earlier reform bill in August, prompting Mr Koizumi to call the election.

On Friday, the bill passed by 134 votes to 100 and will now become law.

"This was a miracle in the political world," Reuters news agency quoted a smiling Mr Koizumi as saying.

"We must push ahead with reforms more than ever," he said.

JAPAN POST IN NUMBERS Manages 25% of Japan's personal assets 25,000 offices and 260,000 employees 330 trillion yen (nearly $3 trillion) in savings and deposits 85% of population has postal savings Profile: Junichiro Koizumi

The reform is significant because Japan Post does far more than deliver letters and sell stamps.

It is also a state-owned savings bank with more than $3 trillion (£1.7 trillion) in assets, making it by some measures the largest financial institution in the world, and the largest provider of life insurance in the country.

The sell-off will first see a holding company take control of the system, with separate units for savings, insurance, postal services and a fourth for personnel and property management.

Rural fears

From 2007 on, each will gradually be sold off, but the savings and insurance sides will be allowed to continue cross-shareholdings to protect them from takeovers.

Its sell-off is controversial because many of its 24,700 branches are in remote locations, and people in the countryside are worried they will lose its valuable services. The older generation has been going to local branches for years to pay in their hard earned savings.

There are also concerns that many of its 260,000 workers could lose their jobs.

But Mr Koizumi, who first began pushing for the privatisation of Japan Post in 1979 when he was a junior finance minister, has argued that privatising it will help modernise Japan's whole economy.

He hopes the move will stimulate growth and open up government-dominated sectors to greater competition.

The real significance of this issue, analysts say, is that it shows that with enough public support, a Japanese politician can fight vested interests and win.

In August, many of the opposing votes came from Mr Koizumi's Liberal Democratic Party, whose MPs have long relied on the post office's huge reserves to fund vote-winning public works projects - and on rural postmasters to help drum up support.

September's landslide victory persuaded several former opponents to switch sides.

Mr Koizumi is now expected to push for reform in other sectors. These could include the medical care system, which is mired in red tape and under pressure from an ageing population, and Japan's sickly state banks.