Japan's upper house of Parliament rejected a proposal to privatize the country's postal system Monday, and Prime Minister Junichiro Koizumi immediately called an emergency Cabinet meeting to dissolve the lower house.
The 125-108 defeat was a heavy blow to Koizumi, who has championed postal reform for more than a decade. The vote revealed deep divisions in his ruling Liberal Democratic Party - national broadcaster NHK reported 22 LDP members voted against the measure.
The legislative package would have created the world's largest private bank, but opposition was strong among opposition and LDP lawmakers who said the measure would cut postal services to rural areas and lead to layoffs, AP informs.
NHK and Kyodo News agency reported that Koizumi told LDP executives after the vote that he would dissolve the lower house of Parliament.
A snap election was expected to be tough challenge for the Liberal Democratic Party, which has been slowly declining in popularity despite its nearly unbroken string of 50 years in power. The opposition Democratic Party has made strong gains in recent elections.
LDP upper house heavyweight Toranosuke Katayama, who had backed the bills, said Koizumi was now all but certain to call an election.
"Given the prime minister's thinking now, I think he will dissolve the lower house. I think there'll be general elections," Katayama told reporters immediately after the vote.
Koizumi was to meet the LDP's junior coalition partner in the afternoon to discuss the decision and Jiji news agency said an emergency cabinet meeting was set for 3 p.m. (0600 GMT), a step needed to dissolve the lower house.
Koizumi's opponents have said Koizumi should resign if the bills were defeated in Monday's upper house vote.
The spectre of political confusion in the world's second-biggest economy if the legislation was defeated had made financial markets nervous, and the yen and Japanese share prices fell when the results of the vote were known.
The Japanese currency, however, quickly recovered most of its losses and the Nikkei share average was later trading well above the day's lows.
The package of six bills proposed that Japan Post be privatized by 2017 and divided into private companies handling mail delivery, banking and insurance.
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