Japan PM faces postal showdown, could call election

TOKYO - Japanese Prime Minister Junichiro Koizumi faces a showdown today that could determine his government's fate, when parliament's upper house votes on bills to privatise the sprawling postal system.

Koizumi has repeatedly said that a rejection would be tantamount to a vote of no-confidence - a tacit threat to call a lower house election that Liberal Democratic Party (LDP) barons fear the long-ruling party risks losing.

Financial markets have been on tenterhooks, fearing failure to pass the legislation will lead to a "triple fall" of Japanese government bonds (JGBs), the yen and Tokyo share prices.

The six bills to privatise sprawling Japan Post, with more than $US3 trillion ($NZ4.39 trillion) in assets and including the world's biggest deposit-taking institution, are the core of a reform agenda Koizumi pledged to implement when he swept to power in 2001.

Koizumi says privatisation is vital to make investment flows more efficient and remove distortions from the financial system.

But many in the LDP fear privatisation will weaken their political machines, which have long relied on powerful rural postmasters to get out the vote and on the postal system's assets to fund popular but wasteful public works.

Koizumi rejected a weekend plea by Yoshiro Mori, his predecessor as prime minister and leader of the party faction that backs him, not to call an election should the bills fail.

"This is my absolute conviction. I would even be ready to die for it," Mori quoted Koizumi, 63, Japan's longest-ruling prime minister in two decades, as saying.

Japan Post has nearly 25,000 post offices, the world's biggest deposit-taking institution, and its insurance business equals that of Japan's four top private life insurers combined.

Worried by signs the party rebellion was gaining momentum, LDP leaders huddled on Sunday to seek a way to save the legislation, which would privatise Japan Post in 2007 and sell off its savings and insurance arms over the next decade.

"There is no good idea," Kyodo news agency quoted LDP baron Toranosuke Katayama as saying after meeting other party leaders.

The bills were approved by the lower house by a mere five votes and can be rejected if 18 of the 114 LDP lawmakers in the 242-member upper chamber join all the opposition in voting against them. The LDP relies on coalition partner New Komeito's 24 members for a majority in the upper house.

Opposition to the legislation appeared to gain momentum on Sunday after LDP upper house member Naoki Tanaka said he would vote against the bills, Kyodo reported.

Kyodo said a survey showed that 19 upper house LDP lawmakers had already expressed their intention to vote "No".

Scenarios for political confusion abound, including a rerun of a 1993 drama in which the pro-reform rebels bolted the LDP and the party lost an election and was ousted, albeit briefly.

Some politicians have said Koizumi might call a snap election even if the bills are approved, in order to purge the party of anti-reformers.

No poll for the lower house is slated until late 2007, and LDP rebels insist Koizumi, whose term as party president runs until September 2006, should resign if the bills fail.

Analysts say the centrist main opposition Democratic Party has a shot at winning an election, but it would need help from other parties to get legislation through the upper house.

LDP anti-reformers have threatened to form a new party, while the New Komeito has hinted it might switch sides if the Democrats became the top party but lacked a majority.

- REUTERS