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Japanese vote set for September 11

Koizumi loses crucial postal reform vote in Parliament



(CNN) -- The Cabinet of Japanese Prime Minister Junichiro Koizumi has set September 11 as the date for a snap election after Parliament rejected a proposal to privatize the country's postal system.

The Cabinet also said campaigning for the vote would begin September 4, the Reuters news agency reported.

Koizumi has staked his political future on an aggressive reform agenda that would have seen Japan Post split into four units and the eventual creation of the world's largest private bank.

"I see the rejection of the postal privatization bills as a rejection of the Koizumi Cabinet and the Koizumi reforms," the prime minister told a news conference.

"I want to ask the Japanese people whether they say 'Yes' or 'No' to my reform agenda," he said.

Koizumi said he would resign if his Liberal Democratic Party fails to win a majority with coalition partner the New Komeito Party.

Kyodo and NHK reported 22 members of the ruling Liberal Democratic Party joined with the opposition to vote against the bills. Another eight LDP members either abstained or were absent.

His postal reform bills were voted down, 125 to 108, Monday afternoon in the upper House of Councilors. They had narrowly passed the lower house last month.

The LDP leadership had said that lawmakers voting against the bill would not be allowed to run on the LDP ticket, according to the Kyodo news agency.

Graham Davis, Tokyo director of the Economist Corporate Network, told CNN ahead of the vote that Japan could expect a period of political instability, though the immediate economic impact would be minimal.

On the Tokyo stock market, the benchmark Nikkei 225 average dipped immediately after the vote was taken, but has since strengthened a little. The average is still trading in the red, down about 0.65 percent.

Japan Post has a workforce of 270,000 people in 24,700 post offices. Its savings arm holds deposits of about $2 trillion, while its insurance arm holds about another $1 trillion.

Under the bills, Japan Post would have been split into four business units by April 2007. These would take over its mail delivery, savings, life insurance and post office network.

The two financial spin offs, covering savings and insurance, would then be fully privatized within 10 years. The banking arm would be the biggest private bank in the world and a potential rival to U.S.-based Citigroup.

Koizumi has said he wanted these two spin offs to to be attractive enough for overseas investors to want to buy stakes in them.

Last month, Heizo Takenaka, the minister in charge of postal privatization, said the four companies to be created would pay a total of 490 billion yen (about $4.4 billion) in taxes in fiscal 2007.

Koizumi told reporters last week he became prime minister by promising to change the party.

"I want others to understand that I'm determined to pursue reform by breaking the status quo," he said, according to the Nikkei.

But opposition to his reform proposals was strong among some ruling party lawmakers who said the measure would cut postal services to rural area and lead to layoffs, The Associated Press reported on Monday.

"This is the first step toward large-scale administrative reform to fundamentally change the shape of this country," said Hidenao Nakagawa, the ruling Liberal Democratic Party's parliamentary affairs chief, arguing Sunday that the postal system was symbolic of the bloated bureaucracy and government waste that has stymied Japan, AP said.

The enormous pool of postal funds have long financed public works projects, while the network of unionized postal workers has also been a bastion of party support, AP said.

Koizumi has argued the money needs to be opened to more efficient investment in order to stimulate the world's second-largest economy.

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