The government has given the green light to a hike in taxi fares in Tokyo, although it allowed a lower rate of increase than the industry sought because of concern that national price trends could be inflated. The rise will take effect in December and be followed by similar increases nationwide. Aimed at increasing drivers' income and improving their working conditions, the hike has exposed structural problems in the taxi industry.

Deregulation of the industry in 2002 abolished a system under which the government regulated supply and demand by requiring approval of the number of vehicles operated by taxi companies. As a result, the number of company-operated taxis in Japan increased by 14,500 (6.7 percent) in the four years to March 31, 2006. However, passenger volume in the period changed little amid slow economic growth, and the per-vehicle daily operating revenue of taxis declined 5.3 percent to ¥29,300.

Taxi operators increased their fleets after the deregulation, and were permitted to set their base fares at less than the standard ¥660 for a medium-size vehicle in Tokyo.