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[JP] Maglev Opening Could Sharply Reduce JR Central’s Profits Through Depreciation and Interest Costs

Source: Diamond Online / Yahoo! Finance
Original title:
リニア開業後にJR東海を襲う…巨額の「利益押し下げリスク」の正体
Date: June 19, 2026, 06:30
Original language: Japanese
Web link: https://news.yahoo.co.jp/articles/4a778 ... 19d7d59034
Accessed: June 19, 2026


[Note: The causal links and information asserted here may not be accurate, but they reflect the newspaper's or author’s view.]

JR Central’s strong Tokaido Shinkansen earnings currently provide the cash needed for construction of the Chuo Shinkansen maglev line. In the fiscal year ended March 2026, operating cash flow reached approximately ¥748 billion, while spending on tangible fixed assets totaled about ¥493 billion. A further ¥420 billion was placed in money trusts associated with future construction expenditure.

Maglev construction has substantially increased JR Central’s investment requirements. Spending on tangible fixed assets rose by approximately ¥257 billion between fiscal 2016 and fiscal 2026. Together with the money trusts, nearly ¥677 billion may have been allocated to current or future maglev work.

The main financial burden will emerge after the maglev line opens. Construction in progress stood at approximately ¥2.441 trillion in fiscal 2026 and is expected to rise toward the estimated ¥11 trillion total construction cost. These assets are not depreciated while classified as construction in progress, but most will become depreciable fixed assets once operations begin.

JR Central has not disclosed the depreciation method for the maglev assets. Assuming declining-balance depreciation over an average period of 40 or 50 years, annual depreciation during the first years of operation could reach approximately ¥440–550 billion.

Financing costs could add further pressure. JR Central estimated in October 2025 that approximately ¥2.4 trillion would need to be raised through bonds and loans beyond operating cash flow. At an assumed long-term interest rate of 3%, this would generate annual interest costs of about ¥72 billion.

Combined additional depreciation and interest expenses could therefore reduce annual profit by approximately ¥512–622 billion.

JR Central expects recurring profit to exceed ¥600 billion in the fiscal year ending March 2030, before additional long-term debt increases. In the fiscal year following the opening of the Shinagawa–Nagoya section, recurring profit is projected to fall to approximately ¥65 billion.

The actual burden will depend on construction costs, interest rates, depreciation policy, and revenue after opening. JR Central’s present financial strength supports continued maglev investment, but depreciation and financing costs could sharply reduce reported profits once the new line enters service.

Comment


JR Central is currently using strong profits from its existing high-speed rail business to finance the construction of the Maglev line. During the construction phase, most spending is recorded as “assets under construction,” so it does not immediately reduce reported profits. This makes the company’s financial performance look stable even though very large investments are being made.

Once the Maglev line opens, this changes. The accumulated construction costs will be converted into fixed assets and then gradually expensed through depreciation over several decades. At the same time, the company is expected to carry additional debt, which will lead to ongoing interest payments. These two effects together could significantly reduce reported annual profits, even if the underlying business generates stable cash flow. In projections, profits could fall sharply compared to current levels because depreciation and interest become visible in the income statement only after the project is completed.

In simple terms: the company looks strong during construction, but after opening the accounting costs of that investment show up all at once in a recurring way.

COMMENT II:

The “why” behind this kind of decision in business and finance:

From a business perspective, companies like JR Central are not trying to maximize short-term accounting profit, but long-term economic value. The key idea is that large infrastructure projects often look “expensive” on paper after completion because accounting rules force costs to be spread over time (depreciation) and financed partly with debt (interest). This can make profits appear lower even if the project is valuable in real economic terms.

The trade-off is that managers accept a future drop in reported profit because they expect the project to generate long-term benefits: higher transport capacity, strategic dominance on key routes, and stable long-term cash flows. In other words, they are exchanging short-term “accounting appearance” for long-term operational strength.

There is also an important accounting reason: depreciation is not a cash outflow. The money has already been spent during construction. So even if profits fall on paper, the actual cash generation of the business may remain strong. Investors and management often distinguish between “profit” and “cash flow” for exactly this reason.

So the core BWL logic is: big infrastructure investments often hurt reported profits later, but firms accept this because they believe the long-term cash returns and strategic advantages outweigh the accounting disadvantage.