Koizumi wins postal reform vote

Mr Koizumi has struggled to bring his party with him on reform

Japan's lower house of parliament has narrowly approved plans to privatise the country's huge postal system.

The move is set to create the world's largest bank, as Japan Post controls 350 trillion yen ($3.2 trillion) in savings and insurance funds.

The 233-228 vote was a victory for Prime Minister Junichiro Koizumi, who had pledged to push the reforms through before leaving office in 2006.

But it was a tight call, with members of his own party voting against him.

Under the proposed reforms, Japan Post would be split into four entities in 2007 in the hope of stimulating competition. Its savings and insurance arms would have to be sold by 2017.

Advocates of the reforms claim that privatisation will make more efficient use of the service's huge funds for investment.

But the country's 300,000 postal employees - a powerful lobbying group who are also instrumental in mobilising rural voters - opposed the bill, fearing for their jobs.

Key pledge

Many ministers in Mr Koizumi's own party, the Liberal Democratic Party (LDP), were also against the move, fearing it would threaten their support base.

The legislation is expected to be sent to the upper house later on Tuesday.

But even rejection by the upper house would not block the bill, since the lower house can override it with a second vote.

Mr Koizumi made privatisation one of his earliest priorities when he came into office in 2001.

He had said that if the lower house failed to pass the reform, it would be tantamount to a vote of no confidence, raising the threat of new elections.

There are currently about 25,000 post offices nationwide, which all sell the system's savings and insurance products, as well as regular postal services.

In contrast, the seven main national banks have only 2,600 branches between them, although that figure does not include the dozens of regional banks also offering financial services.

There are fears that loss-making rural post services will suffer under commercial management, and the organisation's vast investment power has often been used to support politically popular public works. It is also the biggest buyer of Japanese government bonds, helping Tokyo maintain unusually high levels of public debt.

But Mr Koizumi regards Japan Post as a symbol of public-sector inefficiency.