But privatising the postal savings and insurance business was seen as the best way to wrestle these vast funds away from the finance ministry's Trust Fund Bureau.

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The report criticizes back-tracking on the earlier (Koizumi government) decision to privatize the Japan postal savings system.

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But the ideas that have leaked into the Japanese press suggest that the government intends to obtain funds mainly by borrowing from the state-run postal savings system, and to use them in two different ways.

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Ironically, the government's failure to restore public confidence in banks may be good news for its own postal savings system, which, as the world's biggest financial institution, controls about a third of the savings market and is badly in need of reform.

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With the looming privatization of its postal savings bank (and let's have it be a real privatization, with open competition for savings), this is Japan's moment.

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The main reason is that, fearful of the health of the banks, Japanese savers have increasingly been squirrelling money away in the (government-guaranteed) postal savings system instead.

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Another large chunk (3.7 trillion rupees) is in postal savings and pension funds, on which the government guarantees a high fixed return.

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" Postal Savings in Japan and Mortgage Markets in the US", by Thomas Cargill and Hall Scott, Federal Reserve Bank of San Francisco, Economic Letter March 2006.

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It would be able to borrow money, with a government guarantee, either from the Bank of Japan or from the finance ministry's trust-fund bureau, which manages postal-savings money.

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This avoids enraging 1.8m postal-savings depositors, or breaking a law prohibiting lending to the private sector.

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