BackgroundStructural stagnation of domestic demand and market liberalization pressure made maintaining the monopoly system difficult
From the late 1970s onward, sales volumes in the domestic tobacco market had been flat against the backdrop of slowing growth in the adult population and rising health consciousness. Demand came to be recognized as a structural change rather than cyclical deceleration, and the model dependent on volume growth under the monopoly system began showing its limits. Externally, demands for market liberalization toward foreign tobacco companies strengthened, and competition between domestic and foreign products became unavoidable.
On the institutional side, the Provisional Administrative Investigation Council was established in 1981, and in its 3rd Report of 1982, a fundamental review of the monopoly system and public corporation system was proposed. The government proceeded with institutional reforms centered on abolishing the Tobacco Monopoly Law, import liberalization, and conversion of corporate form. As US-Japan trade friction intensified, accepting entry of foreign tobacco and privatizing the public corporation were concretized as conciliatory measures through deregulation.
It was judged that maintaining the monopoly system could not respond to both international competition and changes in domestic demand, and a redesign of the entire system progressed. The public corporation was bound by annual National Diet budget approvals, and long-term business investment and new entry were also restricted. The lack of management discretion became apparent as a bottleneck preventing adaptation to the changing business environment.
DecisionConverted to a joint-stock company with all shares held by the government, gradually acquiring management freedom
The Japan Tobacco Inc. Law was enacted in 1984, and Japan Tobacco Incorporated was launched in April 1985, inheriting the businesses and assets of the Japan Tobacco and Salt Public Corporation. While formally a private enterprise, at the time of launch the Minister of Finance held all shares, with design premised on gradual share sales. It was a transitional measure to shift the subject of management decisions toward the market side while avoiding confusion from abrupt privatization.
With incorporation, the constraint of depending on Diet approval for budgets and investment plans was relaxed, enabling restructuring of the business portfolio. In the same year, a Business Development Headquarters was established and consideration of reducing dependence on the single tobacco business began. The aim of this transition was to increase institutional freedom and enable price strategy, cost management, and risk-taking in new businesses under a competitive environment.
However, this privatization was not a complete market transition. The structure of the government continuing to hold a majority of shares was maintained, and the obligation to purchase all leaf tobacco from farmers also continued for the time being. It was a judgment to draw a gradual line between management autonomy and political involvement, adopting a design that transitions over time rather than switching the system all at once.
ResultExperienced a sharp share decline immediately after launch, forming the starting point for diversification and overseas expansion
Immediately after JT's launch, the sharp yen appreciation following the Plaza Accord, tobacco tax increases, and tariff abolition overlapped in a short period, and the price gap with imported products in the domestic market narrowed rapidly. JT's domestic market share of 97.6% in FY1985 declined to 90.2% in FY1987, and maintaining volume while securing revenue became a management challenge. Competitive pressure not anticipated under the former monopoly system surfaced in a short period.
To respond to this environmental change, JT pursued sales force strengthening and rationalization measures while positioning diversification as a medium-to-long-term strategy. Through the 1990s, entry into pharmaceuticals and food progressed, and capital was allocated utilizing the cash flow of the tobacco business.
Privatization did not immediately generate competitive advantage, but formed a starting point for autonomously operating business without the mediation of political intent. Investment decisions freed from Diet approval and diversification consideration by the Business Development Headquarters were things that prepared the prerequisite conditions for the subsequent RJRI acquisition and overseas expansion.