Japanese National Railways (JNR) was divided and
privatized into six passenger operators and one freight
company in April 1987 just as I was entering high school, but
I remember it like yesterday. Although feeling uncomfortable
with the new ‘JR’ group name and logo, I was excited about
the big changes soon to happen.
This April marked the 25th anniversary of those reforms,
said to have been the greatest administrative feat since
the end of World War II. The intervening 25 years have
witnessed the bursting of Japan’s economic bubble and the
subsequent long-term recession, as well as changes to the
socioeconomic structure starting with the global financial
crisis in the USA. In the midst of these upheavals, the seven
JR companies created from JNR have put great effort into
The three JRs on Honshu—JR East, JR Central, and JR
West—have seen growth in revenues from railway business
centred on shinkansen and expansion of businesses
through diversification. On the other hand, the three JRs
on the smaller islands—JR Hokkaido, JR Shikoku, and JR
Kyushu—have worked to stabilize their management by
using investment income from the Management Stabilization
Fund, and maintain daily rail services in provincial areas. The
freight volumes hauled by JR Freight are linked closely to
economic conditions, and the company has had difficulties
balancing income and expenditure in the long-term
recession, but the company has played its role in handling
the national policy of a modal shift in freight transport from
road to rail.
Figure 1: April 1987 Basic Scheme for JNR Reform
|Changes in 25 Years
Revitalization of railway business
The major significance of the JNR division and privatization
was the intent to change the bankrupt JNR into businesses
that could handle severe competition in the transport market
and would reinvigorate the railway business so railways could
continue to remain important in peoples’ daily lives. From
this viewpoint, some specific results of the 1987 reforms
• Maintenance of fares
After 1975, annual fare increases were the norm in the
JNR era, but since the privatization in 1987, the three JRs
on Honshu have only increased fares once in 25 years
when a national consumption tax (VAT) was introduced.
The three smaller JRs increased fares once in 1996,
but have not increased them since. For the most part,
fares have been maintained at pre-privatization levels,
and differences in fares from large private railways have
mostly been eliminated in urban areas.
• Improved quality in railway services
After privatization, the JRs soon started looking at how
to improve the quality of railway transport. Schedules
were improved and new or modified rolling stock was
introduced, often tailored to specific regional needs.
The JRs worked on increasing speeds to make the most
of rail’s speed characteristic. They improved customer
interaction, which is a key foundation of a service industry
like rail. The combined effect of these changes has been
better convenience for rail users.
• Increased tax payments
The birth of the new JRs as private corporations led to
the payment of national taxes, such as corporate tax,
and local taxes, such as property tax. Tax holidays, etc.,
on property taxes were approved for JR Hokkaido, JR
Shikoku, JR Kyushu, and JR Freight due to their business
situations. However, JR East, JR Central, and JR West
have seen good business results, and the amount of
taxes they pay has increased year after year. In FY2011,
the seven JRs paid \194.5 billion in taxes.
• Increased productivity
JNR had some 387,000 employees when the decision
to divide and privatize was announced at the end of
FY1982; this had been cut to 199,000 at the beginning
of FY1987—the first year of the seven JRs. By the end of
FY2011, the number had decreased again to 125,000,
indicating the improvement in labour productivity.
• Upgraded shinkansen services
Shinkansen improve the convenience of railways
in Japan. At the 1987 reforms, management of the
Tokaido/San’yo, Joetsu, and Tohoku shinkansen opened
during the JNR era was taken over temporarily by the
Shinkansen Holding Corporation which then sold the
lines to the individual JRs in 1991. Each operator has
been working to improve services by increasing speeds
and improving timetables.
The Japan Railway Construction, Transport and
Technology Agency (JRTT) financed, built, and lease
the Hokuriku, Kyushu, and Tohoku (Morioka to Shin-
Aomori) shinkansen opened since 1987. The JRs lease
new shinkansen from the agency, and construction of
new sections has proceeded slowly so as not to place
excessive lease burdens on the JRs. The opening of the
Kyushu Shinkansen (Hakata to Shin-Yatsushiro) finally
connected Aomori in northern Honshu to Kagoshima in
southern Kyushu by shinkansen.
Figure 2: Construction of New Shinkansen
Figure 3: Status of Disposal of JNR Long-term Debt at 1998
Before 1987, JNR’s business was limited strictly to railways.
However, after 1987, the new JRs faced no limits on their
business range, opening the road to diversification.
Soon all six JR passenger operators had started so-called
ekinaka business using space inside the ticket wickets
for commercial purposes. They have developed business in
fields including shopping centres, office buildings, hotels,
advertising and printing. Services utilizing IC card e-money
have also expanded, providing a large source of income.
As Japan’s population starts dropping, future income
from railway transport will drop too while the proportion
of income from these diversified businesses is expected
Handling of Long-term JNR Debt
At the end in 1987, JNR had some \37.1 trillion in
accumulated debts. JR East, JR Central, JR West, JR Freight,
and the Shinkansen Holding Corporation took over \11.6
trillion of this debt burden and the remaining \25.5 trillion
was inherited by the JNR Settlement Corporation (JNRSC).
The intent was to repay the JNRSC debt by selling unused
JNR land and stock in the new JR companies. However, the
plan did not raise as much as expected due to postponed
land sales when the country was experiencing a land price
bubble, and delays in market listings due to a poor stock
market. Consequently, the original scheme of paying annual
interest while redeeming the debt failed.
As a radical measure to handle the debt, the ‘Act on
Treatment of Debt, etc., of the JNR Settlement Corporation’
was passed in October 1998. By this time, the original
JNRSC debt of \25.5 trillion had grown to \28.3 trillion
due to interest and \24.1 trillion was taken over by the
government general account; \4.2 trillion of pension burden
was excluded. As a result of these measures, the amount
of long-term debt is being reduced gradually. At the end
of FY2010, the debt inherited by the general account had
decreased to ￥19.1 trillion.
Full Privatization of Three JRs on Honshu
Initially, all shares in the seven JRs were held by JNRSC but
they were handed over later to JRTT. The shares in the JRs
on Honshu were sold first. The JR East shares were sold
in October 1993, followed by JR West in October 1996.
JR Central shares were sold in separate tranches between
October 1997 and April 2006.
The 1986 Law for Passenger Railway Companies and
Japan Freight Railway Company (JR Law) still gave the
government some control over the new companies. For
example, the Minister of Land, Infrastructure and Transport
had to authorize capital borrowing, annual business plans,
etc. The 2001 revisions to the JR Law exempted the three
JR companies on Honshu from these government controls,
making them fully privatized companies as first intended.
As private companies, they gained freedom and proceeded
with independent management.
The 1047 employees who opposed the JNR division and
privatization were made redundant by JNRSC but they
waged a long campaign to be rehired by the JRs. The
government made efforts in employment measures such
as those based on the ‘Law Concerning Special Measures
for Promoting Re-employment of JNR Personnel Wishing to
Leave JNR and JNR SC Personnel’. However, most of the
1047 people continued civil suits against JRTT, seeking
compensation, employment, pensions, and the like.
In June 2010, the government accepted the request for
a political settlement of the remaining 1047-person issue,
prompting a judicial settlement between 904 plaintiffs
The National Railway Workers’ Union—to which most
of the 1047 people belonged—declared at its July 2011
national conference that the problem of non-employment
was concluded. The Supreme Court is finalizing its decision
on the remaining few who continued litigation, showing that
progress is being made towards settling the issue after
Table 1: Status of Sales of Shares of Three JRs on Honshu
Figure 4: Changes in JR Hokkaido, JR Shikoku, JR Kyushu and JR Freight Ordinary Profit/Loss
The last 25 years have produced many good results, but
some issues still remain. While the three JRs on Honshu are
fully privatized, JRTT still holds all the shares in the three
island JRs and in JR Freight. The most pressing issue is how
to stabilize the business of these companies and achieve
Efforts are also needed in maintaining loss-making
regional lines. While the JRs have managed to keep many
open, declining population makes this harder with time.
Unlike the large JRs on Honshu, the bulk of the business
of the three smaller island JRs is intra-regional transport.
Since it was realized that these JRs would have difficulties
balancing revenues against costs, they did not bear any
of the JNR long-term debt burden when formed. Instead,
a Management Stabilization Fund totalling \1.3 trillion was
setup to yield interest that would offset business losses.
Today, the number of railway users continues to decline
on all lines nationwide due to falling population and build out
of the expressway network. To make business more
difficult, the fund yield has dropped from 7.3% at the outset
to about 3.2%. Both trends are expected to continue, and the
managements of the smaller JRs face a difficult situation.
JR Freight started business as a unified nationwide
freight transporter, and inherited part of JNR’s debt. The
business boom in 1987 helped sustain initial profits for a few
years but the continuing long-term recession and drop in
transport volumes after the bubble burst means it now faces
a difficult management situation. The balance of long-term
debt continues to increase despite management efforts to
In this situation, the ‘Act on Treatment of Debt, etc., of
JNR Settlement Corporation’ was revised in 2011 to allow
the government to provide support. The Management
Stabilization Fund was augmented, and JR Freight and the
island JRs were given access to retained earnings held
in the JRTT special business account; support for capital
investment was also given. The government is providing
strong management supervision and it is hoped these
companies will become more self-reliant in the future.
The future issues for each smaller JR and JR Freight are
JR Hokkaido mostly operates loss-making regional lines. The
management continues to face a difficult business situation
due to factors such as decreasing population and expansion
of the expressway network.
The company needs to work on safety measures as a top
priority following their responsibility for last year’s derailment
on the Sekisho Line.
In another development, the Hokkaido Shinkansen (Shin-
Aomori to Shin-Hakodate) is expected to open in late FY2015
and the company needs to create a set-up that can increase
profits using the effects of the shinkansen.
Like JR Hokkaido, JR Shikoku mostly operates loss-making
regional lines. And again, management continues to face a
difficult business situation due to factors such as decreasing
population and expansion of the expressway network. A
unique issue faced by the company is increased competition
from automobiles if road tolls on the Honshu-Shikoku bridges
are lowered. Together with the local population, JR Shikoku
must study how to counter the effect of such measures.
In any case, the management needs to be made more
efficient and self-reliant by using financial support from
JRTT effectively and going forward with necessary capital
JR Kyushu reported more than \10 billion in ordinary profits
in FY2011, and business is improving steadily as a whole.
This is due to increases in revenue from related businesses
following the full opening of the Kyushu Shinkansen in March
2011 and the start of business at the JR Kyushu Hakata
City commercial facility. In railway business, JR Kyushu
encompasses many loss-making regional lines, causing
an approximately \40 billion operating loss for FY2011
that was offset by investment profits from the Management
In this situation, JR Kyushu aims to list its stock during
FY2016 and must expand earnings by decreasing losses in
the railway part of its business. Before listing, the company
will also need to clarify issues with the government and JRTT.
JR Freight plays a key role in the government policy
promoting a modal shift to rail freight to protect the global
environment. Consequently, it receives support in terms
of budgetary measures and tax breaks to update aging
facilities. However, with the economic downturn following the
Lehman collapse and due to other causes, ordinary profits
in FY2011 were just \100 million, indicating the difficult
JR Freight needs to maintain efforts to achieve self-reliance
through measures such as making management
more efficient and using support from JRTT. The Ministry of
Land, Infrastructure, Transport and Tourism is working with
JRTT to clarify management issues by holding round-table
conferences with experts, shippers, logistics companies,
and others on the future vision for rail freight transport.
Suggestions will be made to JR Freight following the
conclusion of the conferences.
|Maintaining Local Services
How to secure services on loss-making local lines providing
important transport links in provincial areas is a common
issue for all six JRs. The situation surrounding unprofitable
lines is becoming ever more difficult as users decline, so
striking a balance between providing transport supporting
people’s lives and the impact on the JRs’ business is a
The three fully private JRs on Honshu are exempt from
the JR Law so lines can be closed by giving notice under the
Railway Business Act. In fact, line closures with agreement
from local affected parties were considered (but not
implemented) after complete privatization. However, future
population decrease will make more lines unprofitable, and
coordinating closures with local communities desperate to
keep their rail transport is set to be a major issue.
Due to my position in the JRs’ affairs at the Ministry of Land,
Infrastructure, Transport and Tourism, the second half of
this article covering various issues is somewhat lengthy.
However, as noted in the first half, the replacement of the
bankrupt JNR with efficient and profitable private railways
has been a relative success.
The final issue is for the three smaller island JRs, which
have not achieved full privatization yet, to improve business
while recognizing the needs of communities and customers,
so they can become self-reliant as soon as possible. The
Ministry of Land, Infrastructure, Transport and Tourism also
plans to make the necessary efforts to bring the JNR reform
to a conclusion.
Figure 5: Support for JR Hokkaido, JR Shikoku, JR Kyushu and JR Freight