By Charles Scanlon BBC Tokyo correspondent

The Japanese Prime Minister, Junichiro Koizumi, has accepted a compromise in his efforts to deregulate postal services - seen as a key test for his broader reform programme.

It's fitting into the same pattern of starting off sounding good and ending up with next to nothing

ING chief economist, Richard Jerram

A deal was reached after a long battle with conservatives in the ruling party, who are resisting reform.

Mr Koizumi has described the postal reforms as a milestone, but critics complain about the slow pace of change.

Japanese analysts say the compromise over postal services is further proof that Mr Koizumi's reform agenda is being compromised by conservative elements within his own party.

Vested interests

Japan's post office has been described as the world's largest bank, a secure depository for the vast savings of a cautious population.

For years Mr Koizumi has talked about privatising the system and allowing the funds to flow into Tokyo's ailing capital markets.

But since coming to office last year, he has met stiff resistance from conservatives in his own party, many of whom have close ties with the post office.

Finally a compromise has been reached on the first step - establishing a public corporation to take care of postal services.

Limited competition will be allowed but only for the delivery of mail. Tight regulations will inhibit new entrants to the business.

Disappointing results

Mr Koizumi has repeatedly promised structural reforms to revitalise the economy and to shake up a discredited political system.

But resistance from vested interests in the Liberal Democratic party is getting stronger. Mr Koizumi's popularity has fallen sharply since the euphoria of his early months in office.

The postal reforms are seen as a test of his determination and ability to force through change. He himself calls them a litmus test.

But many are disappointed with what they have seen. The old guard is proving adept at delaying tactics, gradually watering down draft proposals. After 14 months in office, Mr Koizumi's goal remains as distant as ever