Japan Post also wants a chunk of private banks' fastest growing revenue source, investment trusts, which it plans to start selling at 575 of its 24,700 branches next month.

Mr Koizumi's basic plan is a good one: privatise the 340 trillion yen ($23.8 billion) monster to staunch the flow of its funds into government - which largely wastes the money on unnecessary public works to prop up Liberal Democratic Party politicians' popularity among rural voters - and redirect that capital into the private sector, which is more likely to generate higher returns.

Japan needs better returns on investment as its population ages and shrinks. It cannot afford to have the financial colossus turn into a massive liability, which will happen if nothing is done to halt declines in each element of its unconventional marriage of mail delivery, savings deposits and life insurance businesses. Those declines contributed to a plunge in net profit from 2.3 trillion yen in financial 2003 to 1.2 trillion yen in financial 2004.

The privatisation plan, however, is very general, calling for the break-up of mail, savings, insurance and branch network management into four separate businesses within a holding company 100 per cent owned by the government by 2007.

A full 10 years later in 2017, the savings and insurance companies would become private corporations through the sale of their shares on the stock market, while the over-the-counter service company and the mail delivery company will remain 100 per cent owned by the holding company, which by that time will be 33 per cent controlled by the government.

In addition, Mr Koizumi has made major concessions:

Two trillion yen to underwrite the savings and insurance units.

No penalty should Japan Post fail to sell the four new businesses by 2017.

Unlimited cross-shareholdings between the four businesses.

All post offices must remain open and continue to offer savings and insurance services until 2017.

Even though a privatised Japan Post will lose its tax-free status and will have to pay deposit insurance premiums in the same way as a private financial institution, the concessions entrench other unfair advantages over private business, a key one being that the huge 224 trillion yen savings and 126 trillion yen insurance units will have access to a nationwide network of branches they did not have to build and are so vast that even their biggest rivals have no hope of matching them.

'What you don't want is to increase their ability to compete with the private sector by distributing other products without taking away their privileges,' said Richard Jerram, chief economist at Macquarie Securities.

Bank of Japan governor Toshihiko Fukui has also called for the privatisation to be fair on banks, brokerages and insurance firms.

Transport analysts say smaller players in parcel delivery will go under as Japan Post utilises its financial and infrastructure clout to muscle in on a business that has doubled in the past decade.

Many experts, however, play down fears that a privatised Japan Post imperils the mega-banks whose business it eyes greedily.

'Banks in Japan are not small businesses. They won't be happy, but there is no real risk,' said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo.

It is widely expected that rather than using government privileges to grow even bigger, the Japan Post units will find it difficult to hold on to the funds they have. Money is flowing out as people chase higher returns available on new financial products at private institutions.

'A lot of money has gone in from Japan's populace because it seemed safe and the government was using it,' said Kirby Daley, strategist at Societe Generale Securities' Fimat division in Tokyo. 'Once [Japan Post has been] privatised, that feeling of doing your duty will be gone and there will be a massive outflow of money into private institutions.'

Although Japan Post is training 4,700 employees to sell investment trusts, it lacks the experience to compete with private firms.

Even if Japan Post were to keep a lock on its assets, privatisation will trigger a significant reallocation of where its money goes. Citibank recently predicted a newly independent Japan Post would make a big shift out of Japanese bonds and into domestic equities.

Ripples will be felt around the world as Japan Post could purchase a net US$127 billion of US bonds and US$64 billion in European bonds, Citibank said. For the US, the new interest would amount to 3 per cent of all Treasury bonds.

That creates new challenges for the government, which has relied on Japan Post to buy up 140 trillion yen in treasury bonds, or 20 per cent of all bonds issued. The government will have to get smaller. It will also have to lure new buyers for bonds, which risks producing a surge in interest rates.

LDP rebels and opposition politicians claim privatisation will also cost tens of thousands of jobs.

But according to Satoru Ogasawara, an economist at Credit Suisse First Boston in Tokyo, their real concern is to maintain support of the 270,000 Japan Post workers who enjoy lifetime employment as public servants. Finally, Mr Koizumi's willingness to permit significant cross-holdings among the various units of a privatised Japan Post may bring a backdoor re-nationalisation if the units buy back enough shares from the market - if indeed shares are offered in the first place.

A plan calling for full privatisation by a deadline of 2017 leaves a long time for things to go wrong.