Mr Koizumi has struggled to bring his party with him on reform

Much of the ruling Liberal Democratic Party remains opposed to the plan.

But Prime Minister Junichiro Koizumi's cabinet has agreed to a step-by-step selloff of Japan Post starting in 2007.

The 400 trillion yen ($3.6 trillion; �2 trillion) in the system has served as a cash cow for MPs to feed lucrative public works projects to their voters.

Mr Koizumi promised the privatisation as part of the LDP's manifesto in recent elections.

His decision to push it through cabinet without the full support of the party in the Diet, or parliament, is rare in Japanese politics.

Perhaps for that reason as much as for the acknowledged scale of the plan, the government described its decision as the "greatest reform since the Meiji era".

The reign of Emperor Meiji cemented the end of two centuries of isolation, as the country opened up to the outside world after US naval ships steamed into Tokyo harbour in 1853.