Japanese National Railways' financing schemes and bankruptcy

Abstract

Japan’s prewar railroad business (Ministry of Transport) was transferred to a public corporation, Japanese National Railways (JNR), after World War II and eventually went bankrupt. This was due to a number of factors, including the decline in the position of railroads, ballooning personnel costs, and the existence of unprofitable local lines. However, the issue that directly caused the crash was the failure of the financing scheme that formed part of the company’s third long-term plan, which commenced in FY 1965. The company had not taken government subsidies or increased its borrowings from the Fiscal Investment and Loan Program (FILP), but instead went outside the FILP and issued large volumes of high-interest rate tokubetsu (special) bonds without a government guarantee, so that by FY 1967, interest and debt-related expenses totaled 101.2 billion yen, or about the same as the 104 billion yen raised by tokubetsu bonds. In other words, tokubetsu bonds were being issued to finance the payment of interest on railway bonds. As a result, the company went bankrupt in the first few years of its seven-year plan, which changed into a financial rehabilitation plan starting in FY 1969.