Japan Post Holdings To Move Away From Yen

Japan Post Is A Massive Institution

News out of Tokyo last week that could further erode the value of the yen received little attention. The announcement concerned Japan Post Holdings, the world’s biggest holder of Japanese government bonds after the Bank of Japan. With little fan fair Japan Post said that it will significantly alter its investment strategy as the state-owned group revamps its 300 trillion yen portfolio. Japan Post President Taizo Nishimuro told a regular news conference that he met with Bank of Japan Governor Haruhiko Kuroda last week and told him that “we will greatly change how we manage the investment of JGBs.” Because of the mere size of Japan Post Holdings this is should be considered a signal of major importance and has far-reaching implications.

Japan Post is a Japanese state-owned conglomerate, through its subsidiaries, provides postal, banking, and insurance services in Japan. Its activities include postal operations; banking counter operations; insurance counter operations; sale of documentary stamps; operations consigned by local government entities; life and non-life insurance agency services; domestic distribution and delivery business, and international cargo transport and agency services for air cargo business; logistics business; real estate business; and merchandise sales. When talking with several of my contacts I was surprised they were unfamiliar with the company, it could be because it is quasi-government in nature and tightly tied to the government.

Japan Post as it existed from 2003 to 2007 offered postal and package delivery services, banking services, and life insurance. With over 400,000 employees and running 24,700 post offices, it ranked as the nation's largest employer. One third of all Japanese government employees worked for Japan Post, as of 2005, it was said to be the largest holder of personal savings in the world. With ¥224 trillion ($2.1 trillion) of household assets in its yū-cho savings accounts and ¥126 trillion ($1.2 trillion) of household assets in its kampo life insurance services, its holdings accounted for 25 percent of Japanese household assets. Japan Post also held about ¥140 trillion (one fifth) of the Japanese national debt in the form of government bonds. In 2007 Japan Post was privatized with the Japan Post Group companies operating the postal business.

That makes the group one of the largest institutional investors in the world. As of 2013, it ranked thirteenth in the Fortune Global 500 list of the world's largest companies. Privatization was put on hold in 2010, so currently, the Japanese Ministry of Finance remains the 100% shareholder. However, plans unveiled in 2012 to list shares of the Japan Post Holdings Company within three years are moving forward and the government plans to list Japan Post Holdings Co Ltd and its banking and insurance units on the Tokyo Stock Exchange in late 2015 or early 2016. About 10 percent of each unit's outstanding shares will be offered in the IPO and could rake in 700 billion yen with the IPO proceeds slated to finance the post-earthquake reconstruction of the country. This could in some ways be interpreted as the government selling off the family jewels. For years many economists have noted the Japanese people have always been the ones to buy their governments debt, this is a step back from that policy.

Traditionally, with close ties to the government the investment strategy of Japan Post has been very conservative with low-yielding JGBs making up more than half of its portfolio. But as Japan Post and its two financial units prepare for separate initial public offerings later this year, they will take a more aggressive investment stance and chase bigger returns, said Nishimuro. Japan Post Holdings Co has hired Katsunori Sago, a former Goldman Sachs Group, Inc.'s executive as head of asset management at its banking unit as it reallocates its portfolio. The move will likely to shift a bulk of money from JGBs to riskier but higher-return assets like stocks and foreign bonds. In doing so I contend this will cement an attitude within the Japanese population that it is time to start shifting savings out of the yen and into other types of holdings. This may someday be looked on as a watershed event as to how the Japanese shift away from the yen to protect their wealth.



Footnote;  As always comments are welcome and encouraged. A prior article I wrote looks at how the financial news flowing from Japan has become so loaded with conflicts of interest and internal deals created to prop up one weak institution with another and of the possible ramifications. The article can be found below.
http://brucewilds.blogspot.com/2015/01/japan-is-about-to-enter-crisis-of-faith.html