Japan to Bring Postal Savings System in Line with Banks

TOKYO - Japan's national postal savings system will be revamped to conform to recent private-sector banking reforms, according to the Ministry of Finance and Ministry of Posts and Telecommunications.

Administered through the post office, the program has been credited with promoting Japan's high consumer saving rate, but it has long been criticized for draining funds from banks.

Agreement on Need for Change

Interest rates on postal accounts, which are tied to the Bank of Japan's discount rate, have been more attractive than bank rates for much of this year.

The two ministries "have reached agreement on the need to revise the interest rate structure of the postal savings accounts," a Finance Ministry official said. "We're now examining how to implement it."

The move is seen as preparation for Japan's plan to lift controls on bank's term deposits in 1993, the official said.

Interest rate deregulation began in 1979, and about 70% of bank deposits are now at market-determined rates. The remaining 30% are special deposits like transaction deposits.

The Finance Ministry official said no details of the rule changes have yet been decided.

Changes Across the Board

But in the long term, the Ministry of Finance is aiming to revamp all financial instruments whose interest rates are tied to the official discount rate, including the postal accounts and some types of bank deposits.

Some observers say the best solution would be to link rates on postal savings accounts to market rates, a step the Postal Ministry opposes.

A stopgap solution might be to cut postal rates by a large margin when the the discount rate is next cut, probably before yearend.

Differences in Deposit Growth

Between January and July of this year, postal savings deposits grew by 9.7 trillion yen, the equivalent of $74 billion.

Deposits at commercial banks grew by less than half that amount, contributing to a dampening of money supply growth to record lows for July through September.

The banking industry is pressuring monetary authorities to take quick measures. The shift to postal savings accounts distorts the process of interest rate deregulation, argued Kenichi Suematsu, chairman of the Federation of Bankers' Association of Japan.

Low Liquidity in Market

The shift of funds has also made it difficult for the Bank of Japan to control the short-term money market because of recent low liquidity.

Analysts said the situation could get even worse during the bonus season in early December, when the money market usually faces a severe funds shortage.

Some economists also criticize the way the Postal Ministry quotes rates on its accounts. The economists say the ministry overstates returns by compounding interest only semi-annually.

Japan has no standardized method for calculating annual percentage rates, as is required by law in the United States.

Table : (Tabular Data Omitted)

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