22-D-1548
March 6, 2023

Japan Credit Rating Agency, Ltd. (JCR) announces the following credit rating.

Japan Freight Railway Company (security code: -)<Affirmation>
Long-term Issuer Rating:
Outlook:Bonds:

AA
StableAA

Rationale(1) Japan Freight Railway Company (the “Company”) is a special company that centrally manages andoperates the freight railway business of former Japanese National Railways. It is the only freightrailway company in Japan that transports cargo using railway tracks of JR companies and others.
While primarily engaging in the freight railway transportation business, it also operates and manages
complex logistics facilities on the premises of freight stations and conducts the real estate business,
centering on the leasing of office buildings, commercial facilities, etc. The ratings reflect JCR’s viewthat the Company for the time being is most likely to receive support from by the central government,
which is involved in the Company under the special act, as well as the Company’s own factors suchas the solid business base and substantively high risk tolerance.
(2) There are no laws or regulations that allow the government to directly provide financial support to theCompany; however, rules on the reduction of fees for using railway tracks paid to JR companies andno-interest loans extended by Japan Railway Construction, Transport and Technology Agency(“JRTT”) as the Company’s shareholder are stipulated based on the government’s policy to support
the Company’s management and can thus be deemed as indirect financial support. In July 2022, theMinistry of Land, Infrastructure, Transport and Tourism made recommendations on initiatives, etc.
aimed at increasing the competitiveness of the Company, on the grounds that freight railway
transportation is vital to achieving carbon neutrality and addressing such issues as the shortage oftruck drivers. Given the factors like the political aspect of the Company as the core body in modal
shift promoted by the government, JCR predicts that the government will most likely remain involvedin the Company’s management and provide financial support through JRTT, etc., as necessary.
(3) While the Company steadily reports profits from real estate leasing and the operation of complex
logistics facilities, mainstay freight railway transportation is chronically in deficit, making overallprofits/losses instable. In the fiscal year ended March 2022 (FY2021), ordinary income plunged 80%
over the year to 0.3 billion yen due to a drop in transportation volume amid the COVID crisis and also
because of heavy rains. Furthermore, it turned into a loss in the first half of FY2022 due to an increasein expenses on top of the above factors. In order to strengthen the earnings base, the Company istaking such measures as the launch of additional block trains, nationwide development of Rail Gate
multi-tenant logistics facilities and new transactions for real estate acquisition. JCR will watch whether
the Company can, through these measures, boost the profit level and establish a corporate structure
invulnerable to the economic climate and natural disasters.
(4) Railway tracks becoming inoperable due to damages caused by natural disasters, etc., is the biggest
business risk. Yet, because these tracks are owned by JR companies and third-sector railway
companies, the Company basically does not incur any repair costs, and thus its financial base is not
likely to be impaired. Meanwhile, the Company plans to make capital expenditures in excess of theoperating cash flow for a while to establish the comprehensive logistics business. Even though anincrease in outstanding long-term debt makes the improvement of financial position unpredictable,
JCR finds no concerns about substantive financial soundness in light of large unrealized gains onreal estate owned.
Atsushi Kato, Akira Minamisawa

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Copyright © Japan Credit Rating Agency, Ltd. All Rights Reserved.

Rating
Issuer: Japan Freight Railway Company<Affirmation>

Long-term Issuer Rating: AA
Outlook: Stable
Issue
Amount (bn)Issue Date
Bonds no. 1 (green bonds)
JPY 10Mar. 17, 2022
Bonds no. 2 (green bonds)
JPY 10Mar. 17, 2022
(all bonds with general security)

Due Date
Mar. 17, 2032
Mar. 17, 2042

Coupon0.374%
0.849%

RatingAA
AA

Rating Assignment Date: March 1, 2023
The assumptions for the credit ratings and the definitions of the rating symbols are published as "Types of Credit Ratings and Definitionsof Rating Symbols" (January 6, 2014) in Information about JCR Ratings on JCR's website (https://www.jcr.co.jp/en/).
Outline of the rating methodology is shown as "FILP Agencies, etc." (May 29, 2020) in Information about JCR Ratings on JCR's
website (https://www.jcr.co.jp/en/).
The rating stakeholder participated in the rating process of the aforementioned credit ratings.

Japan Credit Rating Agency, Ltd.
Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061, Japan
Tel. +81 3 3544 7013, Fax. +81 3 3544 7026
Information herein has been obtained by JCR from the issuers and other sources believed to be accurate and reliable. However, because of the possibility of human or mechanical error as well as other factors,
JCR makes no representation or warranty, express or implied, as to accuracy, results, adequacy, timeliness, completeness or merchantability, or fitness for any particular purpose, with respect to any suchinformation, and is not responsible for any errors or omissions, or for results obtained from the use of such information. Under no circumstances will JCR be liable for any special, indirect, incidental orconsequential damages of any kind caused by the use of any such information, including but not limited to, lost opportunity or lost money, whether in contract, tort, strict liability or otherwise, and whether
such damages are foreseeable or unforeseeable. JCR's ratings and credit assessments are statements of JCR's current and comprehensive opinion regarding redemption possibility, etc. of financial obligations
assumed by the issuers or financial products, and not statements of opinion regarding any risk other than credit risk, such as market liquidity risk or price fluctuation risk. JCR's ratings and credit assessments
are statements of opinion, and not statements of fact as to credit risk decisions or recommendations regarding decisions to purchase, sell or hold any securities such as individual bonds or commercial paper.
The ratings and credit assessments may be changed, suspended or withdrawn as a result of changes in or unavailability of information as well as other factors. JCR receives a rating fee paid by issuers for
conducting rating services in principle. JCR retains all rights pertaining to this document, including JCR's rating data. Any reproduction, adaptation, alteration, etc. of this document, including such rating
data, is prohibited, whether or not wholly or partly, without prior consent of JCR.
JCR is registered as a "Nationally Recognized Statistical Rating Organization" with the U.S. Securities and Exchange Commission with respect to the following four classes. (1) Financial institutions, brokers
and dealers, (2) Insurance Companies, (3) Corporate Issuers, (4) Issuers of government securities, municipal securities and foreign government securities.
JCR publishes its press releases regarding the rating actions both in Japanese and in English on the same day. In case that it takes time to translate rating rationale, JCR may publicize the summary version,
which will be replaced by the full translated version within three business days. (Regarding Structured Finance products, JCR only publicize the summary version in English.)

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Copyright © Japan Credit Rating Agency, Ltd. All Rights Reserved.

I n f o r m at i o n D i s c l o s u r e F o r mJapan Credit Rating Agency, Ltd.

Disclosure Required by Paragraph (a)(1)(ii) of Rule 17g-7

1

Issuer:Japan Freight Railway Company

Rating Publication
Date:

March 6, 2023

The Symbol, Number, or Score in the Rating Scale used to Denote Credit Rating Categories andNotches and, the Identity of the Obligor or the Identity and a Description of the Security or Money
Market Instrument as Required by Paragraph (a)(1)(ii)(A) of Rule 17g-7
Please see the news release. If the credit rating is a private rating, please see the report for private
rating.

2

The version of the procedure or methodology used to determine the credit rating; as Required by
Paragraph (a)(1)(ii)(B) of Rule 17g-7
Please see the news release. If the credit rating is a private rating, please see the report for private
rating.

3

The Main Assumptions and Principles used in Constructing the Procedures and Methodologies
used to Determine the Credit Rating as Required by Paragraph (a)(1)(ii)(C) of Rule 17g-7
The credit rating methodology assumes, in principle, to be applied to assess the likelihood of agiven debt payment in light of its issuer’s condition and business environment, etc. in the relevant
future. There is certain limitation, however, in the time horizon that the rating foresees.
The credit rating methodology assumes, in principle, that the factors posted in the below areparticularly important for such likelihood to be determined, and that the rating determination ismade by evaluating each of them not only quantitatively but also employing qualitative analyses.

A) Legal Protection and Support Provided by the Government
The likelihood of a given debt payment is highly conditional to the issuer’s legal protection provided
by the government, personnel and capital relationship with the government, importance in thegovernment’s policy, credit enhancement, and other forms of the government’s supporting policy,
framework and the strength thereof.

B) Business Bases
The likelihood of a given debt payment is highly conditional to its issuer’s business bases - how they
can be maintained/ expanded into the future and thereby secure earnings and cash flows in adequacy
and in a sustainable way.

1/5C) Financial Grounds and Asset Quality
The likelihood of debt payment is highly dependent on the degree of the issuer’s indebtedness and loss
absorption capacity in terms of equity capital. Also notable is that a financial institution might see asignificant loss of financial grounds as a result of changes in value of the assets under its possession.
D) Liquidity Positions
The likelihood of debt payment is highly dependent on the adequacy of the issuer’s cash and othersources of repayment (liquidity positions).
E) Order of Seniority in Debt Payment
The likelihood of debt payment can be different between given debts of the same issuer. The
likelihood of debt payment for an individual debt is dependent on the issuer’s discretion, and/ or its
rank relative to other debts of the same issuer in the order of seniority in principal/ interest payment
which is determined by design as financial product or by laws, etc.

4

The Potential Limitations of the Credit Rating as Required by Paragraph (a)(1)(ii)(D) of Rule 17g-7
The credit rating herewith presented by JCR is its summary opinion with regard to the likelihood ofgiven debt payment and hence not necessarily a perfect representation of such likelihood. The credit
rating is not intended to estimate the probability of default or the loss on given default, either.
The objective of the credit rating herewith presented does not include any concerns other than thelikelihood of debt payment, such as risks of price changes, market liquidity, etc.
The credit rating herewith presented is necessary to be reviewed along with possible changes of theissuer of rated objects in its business performance and/ or circumstances which include regulatoryenvironment, and hence subject to possible alteration.

5

Information on the Uncertainty of the Credit Rating as Required by Paragraph (a)(1)(ii)(E) of Rule
17g-7
The information used for the determination of credit rating as herewith presented is obtained by
JCR from the issuer of rated objects and other sources that JCR trusts in terms of accuracy andreliability but possibly contains errors due to human, non-human or other causes. Consequently, thecredit rating determined on the grounds of such information does not constitute, explicitly or
implicitly, any representation or warrant of JCR on the information itself or any consequences of its
use in terms of accuracy, relevance, timeliness, wholeness, market value, or usefulness for any
specific purposes.

6

Use of Due Diligence Services of a Third Party in Taking the Rating Action as Required by Paragraph(a)(1)(ii)(F) of Rule 17g-7
There is no use of any third-party due diligence service in the determination of the credit ratingherewith presented.

7

Use of Servicer or Remittance Reports to Conduct Surveillance of the Credit Rating Required by
Paragraph (a)(1)(ii)(G) of Rule 17g-7
There is no use of any servicer or remittance report to conduct surveillance of the credit ratingherewith presented.

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8

The Types of Data Relied Upon for the Purpose of Determining the Credit Rating as Required by
Paragraph (a)(1)(ii)(H) of Rule17g-7
The information posted in the below, which includes data, is used for the determination of the credit
rating herewith presented.
A) Audited financial statements presented by the rating stakeholders
B) Explanations of business performance, management plans, etc. presented by the rating stakeholders

9Overall assessment of the Quality of Information Available and Considered in Determining theCredit Rating as Required by Paragraph (a)(1)(ii)(l) of Rule 17g-7
JCR holds its basic policies for securing the quality of information as a base of due diligence for thedetermination of credit ratings. The information used as a base for the determination of credit ratingherewith presented satisfies such policies, which include the audit by an independent auditor, thepublication by the issuer or some independent media or, otherwise, JCR analyst’s scrutiny, etc.
JCR sees no particular weakness in the quality of information used for the determination of thecredit rating herewith presented as compared to the information used in other cases of the credit
rating for comparable issuers or ratable objects.
If the credit rating is an Indication, please see the report for Indication.

10 Information Relating to Conflicts of Interest as Required by Paragraph (a)(1)(ii)(J) of Rule 17g-7
JCR receives payment of compensation for the determination of the credit rating herewith presented
from either one of those parties who are issuer, underwriter, depositor or sponsor.
JCR received in the last fiscal year in the past payment of compensation from the same party forany kind of JCR’s service other than the determination of public or private credit rating, such as one
in the ancillary business.

or Measure of the Potential Volatility of the Credit Rating as Required by Paragraph
11 Explanation(a)(1)(ii)(K) of Rule 17g-7
A) Legal Protection and Support Provided by the Government
The credit rating is subject to alteration if there is a change in the issuer’s legal support by thegovernment, personnel or capital relationship with the government, importance in the government’s
policy, credit enhancement and other forms of the government’s supporting policy, framework and thestrength thereof. The resultant alteration of the credit rating is usually by a notch, with possibility of afew notches if and when the change is large.
B) Business Bases
The credit rating is subject to alteration if there is improvement or deterioration of the issuer’s
business bases, since its revenue, etc. may improve or deteriorate by the change in its business
management policies, clients’ preferences, competitive situation, or a technological innovation. The
resultant alteration of the credit rating is usually by a notch, with possibility of a few notches if andwhen the change in the business bases is large.
C) Financial Grounds and Asset Quality
The credit rating is subject to alteration if the issuer increases/ decreases its debt/ capital or vice versa
and thereby makes its individual debt payment liability less or more bearable and its loss absorption
capacity into the future decreased or increased. Also, the changes in the quality of asset under theissuer’s holding may affect the credit rating, since such changes could raise or lower the likelihood of
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future loss of the issuer’s financial grounds. The resultant alteration of the credit rating is usually by anotch, with possibility of a few notches if and when the change in the financial grounds and/ or asset
quality is large.

D) Creditworthiness of the Government, etc. that Constitute the Framework of Credit Enhancement
The credit rating is subject to alteration if there is a change in the creditworthiness of the government,
etc. that constitute the framework of credit enhancement. The resultant alteration of the credit rating is
usually a notch, with possibility of a few notches if and when the change on such framework is
exceptionally large.
E) Rise and Fall in General Economy and Markets
The credit rating is subject to alteration if there is a rise/ fall in the general economy and/ or themarkets inducing the issuer’s revenues/ expenses to increase/ decrease and vice versa, etc. The
resultant alteration of the credit rating is usually by a notch, with possibility of a few notches if andwhen the change is exceptionally large.
F) Various Events
The credit rating is subject to alteration on occurrence of various events, such as change in the issuer’s
major shareholders, M&A and other organizational change, accident, violation of the law, litigation,legal/ regulatory change, natural disaster, etc., which are unforeseeable at the time when the credit
rating is determined, causing a significant change on the issuer’s business bases, financial grounds, etc.
The resultant alteration of the credit rating could be by a notch but more often than not as much as afew notches.

12

Information on the Content of the Credit Rating, Including the Historical Performance of the Credit
Rating and the Expected Probability of Default and the Expected Loss in the Event of Default as
Required by Paragraph (a)(1)(ii)(L) of Rule 17g-7
Historical records of the credit rating herewith presented are posted in the end of this paper.
The credit rating herewith presented by JCR is its summary opinion with regard to the likelihood ofgiven debt payment and hence not necessarily a perfect representation of such likelihood. The credit
rating is not intended to estimate the probability of default or the loss on given default, either.
Facts of the probability of default are posted as Form NRSRO Exhibit 1 on the JCR website under
the URL:
https://www.jcr.co.jp/en/service/company/regu/nrsro/on the Sensitivity of the Credit Rating to Assumptions Made as Required by Paragraph
13 Information(a)(1)(ii)(M) of Rule 17g-7
A) Legal Protection and Government Support
The credit rating herewith presented could be changed if and when the assumptions made at the timeof its determination turn out to be inaccurate with regard to the issuer’s legal protection provided by
the government, personnel and capital relationship with the government, importance in thegovernment’s policy, credit enhancement and other forms of the government’s supporting policy,
framework and the strength thereof. The resultant change of the credit rating is most likely by one
notch, as JCR stipulates, but possibly as much as a few notches if the change in the government’s
supporting policy is significant.
B) Business Bases
The credit rating herewith presented could be changed if and when the assumptions made at the timeof its determination turn out to be inaccurate with regard to the issuer’s business bases and powers ofearning or cash flow generation, etc. The resultant change of the credit rating is most likely by a notch,
as JCR speculates, but possibly as much as a few notches if the development is rapid in improvement
or deterioration of the issuer’s business bases on some drastic change in the operational environments,
etc.

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C) Financial Grounds and Asset Quality
The credit rating herewith presented could be changed if and when the assumptions made at the timeof its determination turn out to be inaccurate with regard to the issuer’s financial grounds and asset
quality. The resultant change of the credit rating is most likely by a notch, as JCR speculates, but
possibly as much as a few notches if the development is rapid in improvement or deterioration of theissuer’s financial grounds and/ or asset quality on some drastic change in its business bases.
D) Creditworthiness of the Government, etc. that Constitute the Framework of Credit Enhancement
The credit rating herewith presented could be changed if and when the assumptions made at the timeof its determination turn out to be inaccurate with regard to the creditworthiness of the government,
etc. that constitute the framework of credit enhancement. JCR assumes the resultant change of thecredit rating is most likely by a notch. The change could be as much as a few notches should thecreditworthiness of said government, etc. change so greatly.
E) Rise and Fall in General Economy and Markets
The credit rating herewith presented could be changed if and when the assumptions made at thetime of its determination turn out to be inaccurate with regard to the prospects of general
economy and markets. JCR expects the change should be most likely by a notch but could be as
much as a few notches, should the economy or the markets change so greatly.
on the Representations, Warranties, and Enforcement Mechanisms of an Asset14 Information
backed Security as Required by Paragraph (a)(1)(ii)(N) of rule 17g-7
The credit rating herewith presented is not for an ABS product, and hence no relevant issue.

Japan Credit Rating Agency, Ltd.
Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061, Japan
Tel. +81 3 3544 7013, Fax. +81 3 3544 7026

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The Historical Performance of the Credit Rating
Issuer NameJapan Freight Railway Company
Japan Freight Railway Company
Japan Freight Railway Company
Japan Freight Railway Company
Japan Freight Railway Company
Japan Freight Railway Company

Issue Name

Issuer(Long-term)
Issuer(Long-term)
Bonds no.1
Bonds no.1
Bonds no.2
Bonds no.2

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Publication Date

RatingOutlook/Direction

December 3, 2021
March 6, 2023
March 11, 2022
March 6, 2023
March 11, 2022
March 6, 2023

AA
AA
AA
AA
AA
AA

StableStableAttachment

Attestation Required by Paragraph (a)(1)(iii) of Rule 17g-7

I, Mikiya Kubota, have responsibility to this Rating Action and to the best of my knowledge:

A) No part of the credit rating was influenced by any other business activities.
B) The credit rating was based solely upon the merits of the obligor, security, or money market
instrument being rated.
C) The credit rating was an independent evaluation of the credit risk of the obligor, security, or
money market instrument.

Mikiya Kubota
General Manager of Public Sector Rating Department

Japan Credit Rating Agency, Ltd.
Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061, Japan
Tel. +81 3 3544 7013, Fax. +81 3 3544 7026