When 83-year-old Tsuma Miyagawa wants to get her pension money or deposit cash in a savings account, there's only one place for her to go--the local post office. Most people in her hometown of Otaki, a remote village high up in the mountains northwest of Tokyo, do the same thing. For millions of elderly Japanese like Miyagawa, having access to one of Japan Post's 24,700 branch offices isn't just about sending the odd piece of mail; it's their only gateway to the country's financial system. "If I didn't have the post office, I don't know what I'd do," says Miyagawa. "It's my lifeline."

Until recently, there wouldn't have been any reason to worry about losing it. For more than a hundred years now, the Japanese postal system, with its banking and insurance arms, has been an economic and financial pillar in a risk-averse society. Now Prime Minister Junichiro Koizumi, the country's self-styled crusader for reform, wants to change that. Three years into his term, Koizumi has just shaken up his cabinet with an eye to achieving his most formidable campaign promise--privatizing Japan Post. The reformers aim to break up the existing postal service into its component banking, insurance and mail-delivery businesses. A fourth arm would administer over-the-counter services. The privatization plan is still being debated, but one core idea is to eliminate the government guarantee on Japan Post banking deposits, which could send consumers rushing to private banks with their money.

For Koizumi, this is no ordinary challenge. The Japanese postal service just happens to be the world's largest financial institution--a $3.2 trillion behemoth whose sheer government-protected weight puts private-sector rivals at a crippling disadvantage. Its Yucho postal-savings operation, originally established in 1876, now contains a staggering $2 trillion--30 percent of the country's individual savings deposits. That figure has actually been growing in recent years as cautious customers, spooked by reports of insolvency in the private-banking market, have rushed to take advantage of the blanket government guarantee on deposits. By comparison, the mere $1.2 trillion that Post customers have put into Kampo life-insurance policies looks like a trifle--but still amounts to a 40 percent share of the market, bigger than the next five private competitors combined. Like the postal savings arm, Kampo can offer products at favorable consumer terms thanks to government guarantees and tax exemptions.

If Japanese consumers can be persuaded to invest those funds in the private retail banks, the country's economy might never be the same. In the best-case scenario, huge amounts of pent-up household capital would be moved into private financial markets and help bolster Japan's incipient economic recovery. At worst, Koizumi's efforts could unleash financial chaos and, along the way, trigger full-scale revolt within his own party. Koizumi has hinted that he might counter the latter challenge by calling snap elections as early as this year--thereby holding a gun to the head of his political rivals.

It may not come to that, but no one is doubting Koizumi's seriousness. With characteristic bravado, the prime minister has referred to postal-service privatization as "the biggest reform in Japan since the Meiji era," the late-19th-century period when the country emerged into the modern age. In September he shuffled his old cabinet, installing reformist allies in every key policy position. They've pledged to push ahead with postal reform come what may. The point man is Economic Minister Heizo Takenaka, the former professor who, by dint of his success in overhauling Japan's banking system, is the star of Koizumi's daring agenda.

In purely economic terms, postal reform would seem a winner. But the postal system has been a feeding trough for a variety of formidable interest groups for decades, and they aren't going to go hungry without a fight. To start with, Koizumi has said that he'd like to see the postal service's 280,000 full-time employees (and an additional 120,000 part-time workers) shed from government payrolls. (A whopping third of all the country's civil servants work for Japan Post.) Needless to say, their well-organized postal union hates that idea. And then there's the yuseizoku--the "postal tribe" within the LDP itself, consisting of members who have spent their careers dispensing lucrative government contracts, backed with Post funds, to their benefactors in business and industry. That's been a thoroughly satisfactory arrangement for those directly involved, but pro-privatization reformers point out that pork-barrel politics isn't so great for society at large. "Yucho and Kampo funds have been primarily invested in public-works projects, many of which will never pay back principal, let alone a return," notes a recent report by the American Chamber of Commerce in Japan. "Yucho and Kampo offer the illusion of an investment; taxpayers merely get back their own tax money less the huge overhead costs in the postal system."

Koizumi's passion for postal reform stands in stark contrast to public ambivalence. In a recent poll only 2 percent of Japanese citizens said it should be a government priority. As economist Mitsuhiro Fukao of Keio University points out, "There was plenty of public opinion in favor of privatizing the Japanese National Railways [in 1987] because its service was generally perceived as bad. But that's not the case with Japan Post." Local assemblies around the country have been bombarding the government and their elected representatives with petitions demanding that postal privatization be stopped before it's even started.

Most Japanese don't understand what the privatization plan is all about. Bureaucrats do, however, and they have a long history of sabotaging efforts at taming Japan Post. "The bureaucrats are looking for any reason to postpone the privatization," says Atsushi Mizuno, an analyst at Credit Suisse First Boston in Tokyo. Signs abound that a behind-the-scenes stalling effort is underway. Japan's mail-delivery service is supported by Yucho and Kampo funds, but if it is restructured a new source of financing must be found. Sources close to the government tell NEWSWEEK that the Ministry of Finance and the Ministry of Internal Affairs and Telecommunications, which now manage postal affairs, have reached a quiet agreement to prevent subsidies from being paid to a privatized mail-delivery service over a transitional period.

While domestic politicians play on public worries, some economists criticize Koizumi's plans for offering too many compromises. The report by the American Chamber of Commerce says that the current government blueprint runs the risk of enacting privatization only in name while preserving real or implied government privileges for the new companies.

But that, argues Tokyo economic analyst Stephen Church, may be missing the point. "From April 2007, when the reforms take effect, there will be no particular reason to deposit with the bank," he says, because public savings won't be guaranteed. " So the outlook is that Yucho will actually disappear." Once that's gone, he says, the government is betting that the privatized bank will simply "melt in the sun like a snowman" as consumers shift their deposits to a new retail private-banking sector that will begin to emerge in the spring of next year as the result of another set of Koizumi reforms. And if the LDP revolts along the way, so much the better. Koizumi might actually be spoiling for a fight, speculates Church, so that he can form a new coalition with like-minded elements in the opposition Democratic Party of Japan.

With little public support for radical postal privatization, and the government slow to spell out plan specifics, many of Koizumi's supporters are surprised at his appetite for the challenge. Some analysts say he wants to break the back of the LDP by eliminating its biggest slush fund. Others think the prime minister wants to take vengeance on the postal bureaucrats for cutting him out of the loop during his own term as postal minister back in the early 1990s. Whatever the motivation, Koizumi will have to stay on the offensive he if hopes to win this massive political challenge. If he does, the world's largest bank might slowly disappear--but Japan's economy could prosper as a result. The proverbial check in the mail would finally arrive.