Topic 7: Japan: The Rising Sun

Question 1

What was the Heian Period?

Answer 1

• A unified Japan can be traced back to the eighth century. Over a period of 500 years from the third century to the eighth century, Japan’s many kingdoms and tribes gradually came to be unified under a centralized government, nominally controlled by the Emperor.
  
  • The imperial dynasty established at this time has continued its reign up to today. The dynasty is said by legend to have itsa origins in the seventh century BC with the first recorded Emperor, Jimmu (660-595 BC), considered to be a deity as a descendent of the sun-goddess ‘Amaterasu’.
  • In 794, a new imperial capital was established at Heian-kyō (modern Kyoto), marking the beginning of the Heian Period, which lasted until 1185. This period is considered a golden age for the development of classical Japanese culture in which religious life was influenced by a mix of Buddhism and native Shinto.
    ○ Emperor with a central government
    A lot of cultural influences from China - e.g. language based on classical Chinese

Question 2

What was the Heian to Muromachi Period?

Answer 2

• The Genpei War of 1180-85 between the two most powerful clans of Tairo and Minamoto resulted in a decisive victory for the Minamoto Clan under the leadership of Minamoto no Yoritomo (1147-99). After seizing power, Yoritomo set up his capital in Kamakura in 1192 and took the title of shogun (’military dictator’).
  
  • During the Heian Period the power of the emperor and the imperial court gradually declined and its central control over the various clans dissipated. Rival military clans with their armies of samurai warriors began to jostle for control over the Emperor and the imperial court as a means of controlling the country.
    ○ Clans tried to use the emperor as a pawn
    ○ Tairo and Minamoto clans both had bloodlines linked to the emperor
    In 1274 and 1281, the Kamakura Shogunate withstood two Mongol Invasions (assisted by kamikaze, ‘divine winds’), but in 1333 it was toppled by a rival claimant to the Shogunate, ushering in the Muromachi Period with a return of the capital to Kyoto.

Question 3

What was the Warring States Period?

Answer 3

• In the Muromachi Period conflict between the shogun and a deposed emperor weakened the shogunate and regional warlords known as daimyō grew in power at the expense of the shogun. Eventually, Japan descended into a period of civil war, known as the Warring States Period (1465-1590).
  
  • In this period Daimyō’s, as military lords, acquired direct control over the land in their territory, keeping the peasantry in permanent serfdom in exchange for protection. They fought each other to expand their territory and enhance their economic as well as political power. Society became highly militarised with the samurai establishing themselves as the noble class. The Daimyōs became preoccupied with better administration of their feudal estates, its finances, its border defences and success in war. Threatening alliances were guarded against through strict marriage rules as well as by hostage taking.
  • In the warring states period numerous Daimyōs emerged who were highly adept political and military leaders, some with ambitions to unify Japan under their dynastic clan. These include Shingen Takeda (1521-73), Uesugi Kenshin (1530-78), Date Masumune (1561-1636), Oda Nobunaga (1534-82) and Tokugawa Ieyasu (1543-1616), all well known historical figures in Japan. The latter two of these would be instrumental in unifying Japan and pacifying the country.
  • In the middle of the sixteenth century the key figure to emerge in bringing unification through war was Oda Nobunaga, whose province was strategically located in central Honshu, Japan (quite close to Kyoto - where the capital was). Oda was a bold, brilliant and ruthless military and political strategist. In particular, he devised strategies to effectively use firearms brought into Japan by Portuguese traders. He was also a great supporter of arts and is well known for promoting the Japanese tea ceremony.
    ○ First had to destroy his brothers to unify his clan
    ○ Firearms key to success

Question 4

Which Key Daimyos had an alliance?

Answer 4

Tokugawa and Oda to defend against Takeda

Question 5

Who were the Unifiers and what were their roles?

Answer 5

Oda, Hideyoshi and Tokugawa
- Besides his bold military tactics, Oda’s rise was attributable to the fortuitous death (not in battle) of his two main rivals, Shingen Takeda and Uesugi Kenshin. By 1582 Oda conquered central Japan and was the de facto shogun. However, in that year he was assassinated by one of his own generals who turned against him. At this very time, his most trusted general, Hideyoshi Toyotomo (1536/7-98), who rose from lowly servant, controlled half of Oda’s army on campaign.
- After avenging Oda’s death, Hideyoshi succeeded Oda and completed conquering all of Japan by 1590, thereby bringing the warring period to an end. Hideyoshi ruled Japan from Osaka as ‘Imperial Regent’ until his death in 1598.
○ Hideyoshi could not be the Shogun due to lack of bloodlines
- In the struggle for succession, Tokugawa Ieyasu, a longstanding ally of Oda, became ruler after victory at the Battle of Segikahara in 1600. He created the Tokugawa shogunite in 1603 establishing his capital at Edo (modern day Tokyo).

Question 6

When was the Edo Period, what were its policies and what did it lead to?

Answer 6

1603-1868
- The Edo Period brought uninterrupted peace that facilitated the flourishment of the arts, culture and the economy within a feudal system characterised by a rigid class structure instituted beforehand by Hideyoshi. When ruler he decreed that all peasants be disarmed and only samurai be allowed to carry arms and that they must leave the land and live separately in towns. Through allegiance to their daimyō lord, samurai would receive an annual payment in koku’s of rice according to their rank. Hideyoshi also ordered comprehensive land surveys and a complete census of Japan for the purpose of (i) systematic taxation (i.e. state appropriation of rice) and (ii) to ensure all citizens stayed in the fiefs where they were registered unless they were granted official permission to leave.
- Tokugawa built a feudal hierarchy on top of this rigid social structure in which daimyōs were ranked according to their demonstrated loyalty to the Tokugawa House.
○ Based on which side they were on in the battle last fought

Question 7

Who was Ieyasu Tokugawa?

Answer 7

Shogun of Japan 1603-1616
Ieyasu Tokugawa (1543-1616) was the founder and first Shogun of the Tokugawa Dynasty which ruled Japan from 1603 until the Meiji Restoration in 1868. His great achievement was to establish a feudal system that after 150 years of continuous warring, maintained peace in Japan for over 250 years and kept the country unified under one dynastic rule

Question 8

What was the Tokugawa Political Structure, what did it entail?

Answer 8

• Under the Tokugawa shogunite, the shogun, had national authority and the daimyo had regional authority in a totalitarian political system. This led to a large bureaucracy to administer both centralised and decentralised authorities. To maintain peace there was a code of laws instituted by the shogunate to regulate the Daimyo Houses:
  ○ Daimyos were required to keep their families in estates in Edo (as hostages) and could spend only alternate years in their regional domains (to prevent intrigues).
  ○ The number of weapons, troops and fortifications of the Daimyos were strictly regulated and they were prohibited from constructing ocean-going ships and proscribing christianity.
  ○ The daimyos were regularly levied for contributions for military support and for public works such as castles, roads, bridges, and palaces to deplete their wealth and capacity to make war.

Question 9

What was the relationship between Edo Japan and the rest of the world?

Answer 9

• The Edo Period isolated Japan from the rest of the world for over 250 years. The Tokugawa shogunate considered Catholic Christianity to be destabilizing and took vigorous steps to eradicate it and to cut the country off from the outside world.
  ○ Christianity was banned with over a hundred missionaries and thousands of Japanese Christian converts executed in the 1620s. All Spanish and Portuguese were expelled.
  ○ The ‘Closed Country Edict of 1635’ prohibited any Japanese from travelling outside Japan or, if they left, from ever returning. Any aliens arriving uninvited would be executed.
  ○ In 1636 trade with the Dutch was restricted to Dejima, a small artificial island in Nagasaki Harbour. Besides the Dutch, trade was restricted to the Chinese in Nagasaki all under the strict control of the bakufu.
  § Had to stay on the island
  § Only source of outside world: Dutch traders
  This isolation cemented the homogeneous and unique nature of Japanese culture as well as leaving it technologically backward.

Question 10

What was the population breakdown of the Edo Period? What were the Economic developments of Edo period?

Answer 10

• It is estimated that at the beginning of Edo, in order of rank, 5% of the population were samurai, 80% were peasant farmers, and the rest consisted of merchants, craftsmen (i.e. handicraft manufacturers) and undesirables (i.e. eta and hinin) who did the dirtiest jobs.
  
  • While the administration and security of the country was undertaken wholly by the samurai, and many of them devoted themselves to the arts, literature and scholarship, nevertheless, a large proportion of this class were idle and constituted a heavy economic burden on the rest of society.
  • During Edo there were significant improvements in agricultural productivity, in water freight transport, in forest management, in handcraft production, banking and merchant trade, that enabled considerable urbanisation of the population. However, the population did not grow due to climatically-induced famines and lower urban life-expectancy (mainly higher child mortality).

Question 11

Describe Commercialisation and Urbanisation in the Edo Period?

Answer 11

• Urbanisation greatly promoted merchant trade in Japan during Edo. By mid-eighteenth century, Edo’s (now Tokyo’s) population was over 1 million persons, whilst Osaka and Kyoto had more than 400,000 inhabitants. Most castle towns through Japan flourished commercially.
  
  • Commercial growth in a progressively ‘money economy’ slowly but surely eroded the feudal class structure of Edo. The samurai class, acquiring a taste for luxury services and products on offer, fell into a state of chronic debt as city prices rose in relation to their income paid in rice. By contrast, the merchants became more prosperous as money-lenders.
    ○ Some Samurai gave up their status as Samurai to become merchants
    Commercial growth also led to the Tokugawa regime becoming indebted and imposing wider taxes on commodities (other than rice), often resorting to raising revenue by recoinage that was inflationary. By the early 19C the fiscal position of the Tokugawa regime had become weak.

Question 12

When was the forcible opening up of Japan for trade?

Answer 12

‘Black Ships’ and the Disintegration of the Tokugawa Shogunite
- The forcible opening up of Japan for trade by United States Commodore, Matthew Perry, in his ‘black ships’ – as they were called by the Japanese – in 1853 and 1854 contributed toward the disintegration of the Tokugawa shogunate that was already well underway.
- From early in the nineteenth century the fiscal problems of the regime had become critical as the strains of subsidizing unproductive samurai increased. Real power had effectively shifted to the merchants and financiers who had formed ‘monopolistic’ guilds to protect their interests.
To break this power the Shogun abolished the guilds by decrees in 1831 and 1843. But this only led to the destruction of the credit system and to further economic dislocation that undermined attempts by the regime to raise tax revenue. When foreign trade began after 1858 economic and social tensions intensified and political revolt became more open.

Question 13

When was the Meiji Restoration? What happpened?

Answer 13

1868
- The opening up of trade and the conclusion of demeaning trade treaties with foreign powers, essentially forced on the Shogun, politically discredited him as the betrayer of the country. Measures to ameliorate the economic problems and implement reforms only alienated the most powerful classes.
- It was not the merchants but the samurai of lower rank from the ‘outside’ clans of Satsuma, Choshu, Tosa and Hizen in western Japan who revolted against the Shogunate in the name of the Emperor. In 1868 the House of Tokugawa meekly collapsed and the Emperor was restored to a constitutional position not occupied for some 800 years.
- The Meiji government was led by samurai whose common objective was to implement policies that would enable the rapid adoption of Western methods in war and industry to secure Japan’s independence and rescind the unequal treaties imposed on her.
○ Can see what is happening to China
○ Wanted to Westernise to avoid the same thing happening

Question 14

What was the Meiji Policy of Westernisation?

Answer 14

• The central objective of Meiji leadership was to ensure Japan’s security of independence by building up its military power, something which required rapid economic development.
  
  • From fact finding missions abroad – especially the Iwakura mission to Europe and America in 1871-73 by influential reformers – the Meiji leadership realized that economic development with the ability to produce modern technology required the westernization of its institutions that fundamentally changed the Japanese way of life. (A negative example had been provided by the decline of China which had tried to modernize without westernization).
  • By adopting western models to reform and create institutions for development the Meiji government faced down popular discontent arising from the rapid transformation imposed on the way of life. Military successes abroad would pacify domestic discontent from the 1890s.

Question 15

What were the fundamentals of Japan at the time of the Meiji period? How did this promote Capitalist Development?

Answer 15

• Though backward and lacking the influence of liberal enlightenment, Meiji Japan was in many respects well equipped to enter a process of modernisation. There was a relatively high literacy rate with a broad coverage of formal education. It is estimated nearly half the male population and 15% of females received systematic education. Certainly most of the samurai and merchants were highly literate. Widespread education did much to facilitate the communication of new western ideas and techniques from the outset.
  
  • The samurai provided strong and responsible leadership under the one banner of developing a powerful nation capable of preventing exploitation by foreign powers. The samurai had the demonstrated ability to organize.
    Edo feudal culture of obligation and loyalty ensured a disciplined workforce that could be motivated by patriotic sentiment as much as by personal ambition.

Question 16

What were the Maiji Liberal Reforms

Answer 16

• The Meiji Government instituted sweeping liberal reforms to sweep away the vestiges of the Tokugawa feudal state and enable social and economic mobility:
  ○ The privileges of samurai were abolished and all the various social classes were declared equal under the law with the same freedoms.
  ○ All barriers to communications and restrictions on internal trade abolished.
  ○ Entry into professions and trades were thrown open to anyone.
  ○ Individuals were permitted to acquire property rights in land.
  ○ Feudalism was abolished with the clans surrendering their fiefs to the Government.
  ○ In 1871 prefectures were established in place of the Daimyo provinces with the old administrative system swept away.
  Prefectures based on Daimyo territories

Question 17

What were the Meiji Policies to acquire Western knowledge?

Answer 17

• Acquiring knowledge of western techniques was an early pre-occupation of Meiji policymakers. Under Tokugawa foreign experts had been engaged to instruct in western methods of mining and manufacture. This policy was pursued more widely by the Meiji Government. In 1875, when foreigners employed by the central and prefectural government was at its highest, there were 527 employed, of whom 205 were technical advisors, 144 teachers, 69 managers and administrators and 36 skilled workmen. Japanese were also encouraged to go abroad to acquire western knowledge and many did so.
  The State established numerous colleges and schools, including those for engineering, mining and agriculture. Agricultural experimental stations were also set up to assist in the adaptation of foreign crops to Japanese conditions and to work out improved methods of farming.

Question 18

What were the Meiji Government’s Trade Policies?

Answer 18

• A major early concern for the Meiji government was to improve Japan’s trading performance to generate the foreign exchange needed to buy western technology embodied in capital goods. In 1869 it founded the Commercial Bureau to supervise and encourage foreign trade and it established trade organizations for developing the export of artistic products. In 1877 it organized an Industrial Exhibition at Ueno Park, Tokyo.
  
  • The Government invested in industrial ventures to establish factories for producing cement, glass and building materials in the hope of developing import replacement industries. It also sponsored manufacturing establishments equipped with Western machinery for producing new products or goods hitherto manufactured by traditional methods. In particular, the government in 1870 established two raw silk factories equipped with modern Italian and French steam-powered reeling machinery.

Question 19

What was the trend in foreign trade and the external balance after the Meiji Restoration?

Answer 19

• Foreign trade did grow strongly in the decade after Restoration: in 1868 its total value was 26 million silver yen, by 1873 it was 50 million and by 1881, 62 million. Imports exceeded exports most years so that the deficit on the trade balance was 79 million over the period 1868-1878. Imports consisted of manufactures, mainly cotton textiles, and exports consisted of raw products, chiefly tea and raw silk. The balance of payments was more adverse than this because Japan had to remit large sums abroad for services rendered by foreign merchants and banks for handling foreign trade and for shipping services.
  ○ Could not use tariffs - disadvantage
  The external deficit was partly met by foreign capital inflow, consisting of two foreign loans raised in London and short-term capital brought in by foreign merchants and financial houses, but chiefly by the export of specie (i.e. silver) which the inflationary policy encouraged. The net export of specie amounted to over 70 million yen in the period 1872-1881.

Question 20

What were the communications and transport policies of the Meiji government?

Answer 20

• The Government initiated a number of measures to introduce western methods of communication and transport important to future industrialization:*
  § The local government provided licenses to produce and sell rickshaws invented in Tokyo in 1869, which would become the most important form of city transport in Japan well into the twentieth century.
  ○ In 1871 a postal and telegraph system was introduced and in 1877 Japan joined the Postal Union.
  ○ In 1869 a steamship line between Osaka and Tokyo, the two largest Japanese cities was formed.
  ○ In 1872 the first railway between Tokyo (Shimbashi) to Yokohama was built, financed by a British loan and by the employment of some 300 British and European technical advisors and operating staff.
  In 1874 the Government bought ocean-going ships from abroad to operate coastal transport services and lines to Formosa and China. Foreign captains commanded the ships.

Question 21

What was the state of the Meiji Government’s Financials?

Answer 21

• The interventionist policies of the Meiji Government to renovate the economy and put it on the road to capitalist development were seriously constrained by financial problems inherited from the Tokugawa regime.
  
  • The chaotic state of the economy made it difficult to impose new taxes while the trade agreements with foreign powers limited the revenue which could be secured by custom duties.
  • The central government had to compensate the daimyo for surrendering their rights and take over their liabilities, the most onerous being annual pensions for the samurai whose functions as former retainers ceased. The problem was that the revenues received by the Daimyo for this purpose were not easy for the central government to collect.
  • There was also heavy military expenditure incurred in crushing the rebellion of Tokugawa loyalists in 1868-9, and, then, later, in 1877, to suppress the Satsuma rebellion.
  • The budgetary situation was dire: in 1868 expenditure was 25 million yen while tax revenue was 3.7 million yen. The government obtained loans from a few wealthy supporters, notably Mitsui and other Japanese merchant houses, and borrowed short-term from foreign merchant houses, amounting to 5.4 million yen. This left a deficit of 16 million, which was repeated in 1869.
  • To meet the budget deficit the government resorted to printing money with 48 million yen in notes issued in the years 1868 and 1869. The inflationary effect led to a sizable depreciation in the value of the notes as well as other circulating paper monies.
  • The situation began to improve with tax reform in the early 1870s, when a land tax of 3% (value based net product) was imposed, then reduced to 2½% in 1876. By 1879-80, nearly 80% of revenues were due to land tax. In the late 1870s there was also a rationalisation from some 1600 to 74 different taxes.
    ○ Land tax made it harder for some farmers on the land
    ○ Land tax intended to encourage concentration of land

Question 22

What were the Fiscal reforms of the 1880s? What did they enable?

Answer 22

• In the early 1880s priority was given by the government to restoring its fiscal balance whilst government spending increased. The main fiscal reforms were:
  ○ the system of land taxation was reformed and increased taxes were imposed on sake and tobacco.
  ○ efficiencies in public administration were achieved.
  ○ grants for public works and private enterprises were ceased.
  ○ sale of government factories to private firms (who would later become zaibatsu’s)
  ○ establishment of sinking fund for the repayment of public debt which led successfully to a reduction in the interest-cost on the debt.
  ○ the practice of drawing up regular annual budgets for fiscal policymaking
  • Fiscal reforms secured an expanding revenue tax base enabling the Meiji government to finance rising annual expenditures mainly for military armament, conflict and colonial expansion.
    ○ Sino-Japanese War of 1894-95 from which Japan acquired Formosa (i.e. Taiwan), after violent suppression, and Pescadores Islands, financed mainly by debt and an indemnity from China of 366 million yen. The development of Formosa as a colony involved substantial annual government subsidies.
    ○ After nationalization in 1906-7, investment in expansion of the state railways
    ○ Russo-Japanese War of 1904-05 and expenditure on the development of ‘acquired’ territories of Korea (1910), the Kwantung Peninsula and South Manchuria.
  • Between 1894 and 1907 national debt increased ten-fold, with much reliance on foreign loans.

Question 23

What was the Meiji government’s military model? What were the key wars and what were their impacts?

Answer 23

• Westernization of its institutions necessary for rapid economic development was not domestically popular. Military aggression was a means by which the Meiji leadership could divert public opinion and nurture nationalism. The military victories of the army and navy over China in the Sino-Japanese war generated nationalism associated with colonial expansion. The European model of colonial imperialism was considered necessary to secure Japan’s security in the world.
  
  • The major security issue for Japan was the decline of China as a power so creating a vacuum into which Imperial Russia could expand into East Asia. This led to the Russo-Japanese war. Nationalism became an important political dynamic of Japanese economic development and militarism.
    With its rising international power Japan re-negotiated all the demeaning trade treaties with foreign powers in the 1890s to take full control over its trade and ports.

Question 24

What were the foundations of the Japanese National Banking System? How were they revised?

Answer 24

• A major initiative of the Meiji Government was to establish a national banking system on the American model. In 1872 prudential regulations were laid down in which national banks were to deposit government paper money equal to three-fifths of its capital with the Treasury and to hold gold reserves equivalent to two-fifths of its capital. For the paper money the banks would receive Bonds bearing 6% return and they were permitted to issue their own notes redeemable in gold up to the amount of their security.
  ○ By buying bonds - could issue own currency
  ○ Tried to implement a gold based paper currency system
  
  • The main idea was to replace inconvertible government paper money with bank notes convertible into gold and put the currency on a firmer footing as well as give impetus to banking. The policy was too ambitious and only four national banks were established under these regulations as the interest rate on Bonds offered was too low to be profitable to potential investors in banking.
  • In 1876 the National Bank Regulations were revised which allowed banks to issue bank notes up to a limit of 34 million yen against the deposit with Treasury of Government Bonds equal to 80% of their capital. The banks could issue inconvertible notes against Government securities instead of gold reserves and this became attractive with 148 new national banks established between 1876 and 1880.
  • This policy also had the benefit of causing these banks to purchase and maintain the value of the government’s ‘pension’ bonds which financed hereditary pensions of the samurai military classes. It also enabled government borrowing for infrastructure projects and to finance military expenses of supressing the Satsuma Rebellion in 1877. However, the policy led to a further expansion of inconvertible notes with an inflationary boom not brought to an end until the middle-1880s.

Question 25

When was the BoJ created? What were the policies associated with this creation?

Answer 25

• Based on a European model (i.e. Belgian) the Bank of Japan was created in 1882 as a central bank for Japan’s financial system. This bank could issue convertible notes against a specie reserve and a fiduciary issue (inconvertible - not backed by gold) on which a tax of 1½% was to paid. With permission of the Minister of Finance, it could expand its fiduciary issue to deal with a liquidity crisis. Funds obtained by the sale of factories by the government was used to purchase specie for the new central bank.
  
  • The national banks were required to transfer their reserves to the Bank of Japan and to make annual payments into a fund to redeem their notes. By 1886 all inconvertible paper was retired while issued Bank of Japan notes in circulation were convertible into silver at its par value. The resulting contraction of the currency contributed to arresting price inflation. In 1896, at the expiry of their charter, all national banks were dissolved with 132 transforming themselves into private deposit banks.

Question 26

When was the Gold Standard adopted?

Answer 26

• A deflationary fiscal policy, higher productivity of industry and the currency reforms arrested price inflation in the late 1880s, all assisting the transition to a silver convertible currency.
  
  • In 1897 Japan was able to adopt the gold standard to stabilize its foreign exchange earnings by the receipt of the indemnity (equivalent to 38 million pounds sterling) by China under the Treaty of Shimonoseki in 1895 as the victory spoils in the Sino-Japanese war. While part of the indemnity was brought home as gold to establish bank reserves, the remainder was deposited in London and invested in British securities.
  • A specialized foreign exchange bank, the Yokohama Specie Bank, created in 1880, was entrusted with the reserves, operating in concert with the Bank of Japan, which was directed to discount all its foreign bills of exchange at specially low rates. The benefit for Japan going onto the gold standard was to get greater access to foreign capital in London.

Question 27

What were development banks? When were they established?

Answer 27

• Other specialised banks for promoting development were also established by the government:
  ○ Hypothec Bank of Japan in 1896: to provide long-term commercial loans on the security of immovable property such as paddy fields, forests, fishing waters and rights etc. It acted as a kind of central bank for forty-six Agricultural and Industrial Banks, one established in each prefecture.
  ○ Industrial Bank of Japan in 1900: to provide lending to industry, especially heavy large-scale industry, such as shipbuilding, public utilities, iron and steel, and machine tools. It engaged also in investment of colonial industries. They were military as well as economically strategic industries.
  ○ Others include the Hokkaido Development Bank (1899), Bank of Taiwan (1899), Bank of Chosen (in Korea) (1909) and Oriental Development Company (Manchuria/Korea) (1908).
  § Hokkaido: very undeveloped at the time

Question 28

What were the aims of the Japanese Banking System?

Answer 28

• The banking system created was to overcome the weaknesses in business and entrepreneurship and to promote the government’s economic, colonial and military ambitions.
  
  • Bank of Japan and central colonial banks with the function of reforming and controlling currency.
  • The Yokohama Specie Bank entrusted with financing foreign trade, crucial with respect to importing war materials for its armaments program and capital equipment for development of its strategic industries.
  • Specialized investment banks to overcome a lack of private investors, in financing large-scale enterprises.
  • Private joint-stock commercial banks, including large banks in zaibatsus, to facilitate commerce. By 1913 there were 2158 such banks, of which 648 were saving banks, collecting savings from the poor and purchasing long-term government securities to assist the government’s debt financing.

Question 29

Overall, what were the key features of the Meiji Period?

Answer 29

Meiji Period of Modernisation: 1868-1912

- The Meiji Period of 1868-1912 was one of modernisation, creating the institutions for capitalist development consistent with the main objective of making Japan an independent and, ultimately, powerful nation. By World War I much had been achieved and, indeed, with its defeat of Russia in 1905, had become a major colonial power in Asia.
- After a difficult transition, the economy flourished from the mid-1880s, led by growth in the textiles industries, followed by the food-processing and light manufacturing; whilst the heavy industries established by much government assistance were still in their infancy. A measure of Japan’s development, between 1872 and 1913 the proportion of employed persons in agriculture declined from 83% to about 60%, whilst in manufacturing the proportion grew from 4% to 15% and in Commerce and Finance from about 5% to nearly 11%.  
- Nevertheless, in comparison to the European powers and the United States, Japan’s economy remained backward.

Question 30

What was the development of agriculture in the Meiji Period?

Answer 30

• The freeing of peasants from feudal restrictions led to higher productivity in agriculture as new methods of cultivation were adopted. While there was an increase in the area under cultivation (in rice, about 13%), the growth in cereal crops was mainly due to improved methods of intensive farming, including more efficient irrigation, better crop strains, pest control and the use of fertilisers.
  
  • Over the period 1880 to 1910 rice production increased by 62%, barley by 85% and wheat by over 100%. Supplemented by food imports from its colonies, food production was far greater than population growth (of 35%) and enabled a significant increase in consumption per head.
  • Whilst about 20% of land farmed was by tenants as distinct from peasant proprietors, by 1910 it rose to 45% reflecting greater land sales activity and farm concentration. It perhaps also reflects greater urbanisation.
    ○ Increased tenant farmers

Question 31

What were the early developments of the textiles industry?

Answer 31

• The main growth in manufacturing was in textiles, especially of silk, which had long been a traditional industry. With cheap labour and low cost capital intensity, textile manufacturing was able to thrive as improved technology was progressively applied initially to small-scale production units. As a key export industry, its development was promoted by government measures.
  The leading textiles industry was silk, both in the growing of raw silk and the manufacture of silk cloth and final products. From the beginning it was Japan’s major export industry and remained so until the 1930s. Between 1868 and 1883 output of raw silk grew at an annual average rate of 3.4% and its export at 5%. Over the period 1883 to 1910 the production of silk increased by nine-fold (6.9% p.a.) and its export increased by seven-fold (6.7% p.a.). Silk growing contributed greatly to rural income in Japan.
  • The first modern cotton mill in Japan using western technology was founded in 1861 by the Daimyo of Satsuma who built a second one in 1870. The Meiji government actively encouraged the industry by importing spinning machinery and providing loans to entrepreneurs to equip their factories with them. But unable by treaty to use tariff protection to keep out cheap foreign yarn, the small domestic industry took some time to make progress. Only after the Sino-China War of 1894-5 and Japan captured the Korean market and larger share of China’s market that the industry expanded. From 1893 to 1913 output of yarn increased by seven-fold (average annual growth rate of 10%).
    Woollens manufacture began with a government factory in 1877 to make army cloth. Assisted by a tariff of 25% in 1899, the industry grew significantly (by eight-fold) only in the decade before the first world war, though it remained relatively small.

Question 32

What were the early developments of the heavy industries?

Answer 32

• It was not until in 1901 that an iron and steel plant using modern western technology was established, by the Government, known as the Yawata Iron works. In the next few years several other plants were founded by large private capital interests. By 1913 pig iron output was 243,000 tons and steel 255,000 tons, meeting 48% and 34% of domestic consumption. But none of these producers were financially successful. Hence, by World War I, Japan was still highly dependent on foreign suppliers for iron and steel.
  
  • The major development in the mining industry was coal mining that grew with the use of steam power in manufacturing (home heating relied on charcoal braziers). At less than one million in the early 1880s, coal production grew to over 22 million metric tons by 1914, though very small by western standards.
  • The engineering and machine tools industry remained small notwithstanding considerable efforts by the government to foster its development. Although shipbuilding yards were established by the Meiji government in the early 1880s output was small and Japan relied on foreign shipyards for larger ships to build up her mercantile (as well as naval) fleet. As a result of large subsidies, Japanese shipbuilding capacity began to significantly develop in the first decade of the twentieth century. By 1913 there were six shipyards capable of building vessels of more than 1000 tons, including warships, and annual production reached 50,000 tons.
  • In other fields the engineering industry was also in its infancy: electrical machinery, cable and wire, marine engines, railways, electricity and lighting. The machine tools sector (not engaged in ship building) employed about 60,000 persons in 1913.

Question 33

What was the impact of the First World War on Japan?

Answer 33

• The First World War brought a boom to Japanese industry and, especially, gave considerable impetus to industrialisation. Whereas in the twenty-five years prior to the war secular growth was 3% per annum on average, in the period 1914 to 1921 Japan’s growth rate was on average, 5%.
  
  • The Asian market was thrown open to Japanese producers by the reduction in western suppliers; whilst Allied governments placed large contracts with Japanese manufacturers for munitions and war materials as well as for shipping. Export growth for the period 1914-1921 averaged 4.8%.
  • The textiles industry enjoyed considerable growth during the war: silk production nearly doubled; cotton yarn output increased by some 60% (with exports growing 3-4 fold); and woollen fabric production grew four-fold. Based on an index of textiles production*: 1910-14 = 100, 1919-23=270.
  • The general growth in manufacturing provided a stimulus to Japan’s heavy industry still in its infancy. Hence, the production of pig iron and steel production more than doubled between 1913 to 1920: pig iron from 243 to 521 thousand tons and steel from 255 to 533 thousand tons. Over this period coal production increased by one third from 21 to 31 million tons. Also, cement production and electric-power capacity more than doubled. Ship-building increased dramatically from an annual average output of 50,000 tons in the period 1909-13 to 267,000 tons in the period 1914-18. Another indicator of growth in manufacturing, the number of factory employees increased from 948,000 in 1914 to 1,612,000 by 1919 (a 70% increase).
  • Japan’s trade balance turned from a deficit to a surplus during the war with export volumes increasing by 47% between 1913 and 1918. It led to large accumulated gold reserves.

Question 34

What happened in the post-war decade (after WWI)? What happened in 1927?

Answer 34

• While the First World War gave stimulus to Japan’s industrial development and raised living standards in general, it also had a destabilizing impact that would lead to economic malaise in the 1920s.
  ○ Inflationary pressures in 1918-19, in which food (rice) prices rose considerably relative to wages, caused a wave of agitation and industrial unrest in the form of urban rice riots and mass strikes.
  ○ Post-war recession occurred in 1920 with the severest impact on those industries, like ship-building and coal-mining, that expanded most during the war. A short-lived recovery in 1921 associated with a global post-war boom, was followed by a more sustained stagnation in 1922 and 1923 as deflationary policies of the United States depressed world demand. Carrying higher post-war inflation than major nations, Japan was now less able to compete in overseas markets.
  • The economic malaise of the 1920s was associated with considerable financial instability and trade deficits as imports exceeded exports until the 1930s. The Great Depression also hit Japan in 1929, only two years after recovering from a serious financial crisis in 1927. In the period following the brief post-war boom, from 1922 to 1931, Japan’s economy grew at an average annual rate of only 1.4%, slowing the trajectory of the nation’s development.
  • The major stimulus to the economy in the 1920s actually came from a natural disaster. In 1923 the Great Kanto Earthquake devastated Tokyo and the port city of Yokohama, killing over 140,000 citizens (due to fire) and greatly disrupting urban industry and trade. The investment for reconstruction gave the economy a boost to growth in 1924 and 1925 but which also placed considerable financial strains on the economy, contributing to financial crisis in 1927.
  • After the post-war boom, the Japanese grew at an annual average rate of 1.4% between 1922 to 1931.
  • From early in the 1920s a number of private banks carried unreported bad debts and this situation worsened with additional debt created to finance earthquake reconstruction (i.e. ‘Earthquake Casualty Bills’). Underwritten by government guarantees, the Bank of Japan extended credit lines to the banks (i.e. discounted bills) that enabled postponement of the settlement of the accumulated bad debt.
  • When in 1927 debates in the Diet (i.e. parliament) over government attempts to settle bank debts revealed financial difficulties with the Taiwan Bank, which required assistance, a panic among bank depositors was ignited causing a financial crisis. After a change of government, a three-week freeze on banking was instituted until emergency measures were put in place to ensure liquidity support by the Bank of Japan, which quelled the panic. The crisis led to reform with the Banking Act of 1927 and widespread industry restructuring.

Question 35

What were the Reforms of Banking in 1927? What else did the crisis induce?

Answer 35

• The new Banking Act of 1927 stipulated larger minimum capital requirements for banks and prohibited bank managers from engaging in non-bank business. Its purpose was to encourage amalgamation of banks and thereby eliminate the instability of small unit banking. The number of banks were declining in the 1920s and the trend accelerated after 1927 with an increase in mergers.
  
  • The crisis also induced a wider rationalisation of industry as smaller less competitive enterprises were weeded out and larger ones emerged. This industry concentration, especially in the capital-intensive manufacturing sector, led to the emergence of the Zaibatsu as the dominant business enterprises in Japan’s economy. They would come to progressively dominate the economy in the 1930’s as more intensive industrialisation unfolded, progressively associated with war production.

Question 36

Who were the Zaibatsus?

Answer 36

• The zaibatsus were large industrial and financial conglomerates involved in industries strategic to economic and military development with close connections to government (via alliances with political parties) and the military.* The four largest zaibatsu to emerge were Sumitomo, Mitsui, Mitsubishi and Yasuda. They were all family-owned enterprises controlled through holding companies, the first two had origins in Edo merchant houses and the latter two were established under Meiji Restoration.
  ○ * Mitsui was associated with the Rikken Seiyukai political party and had close links to the Imperial Japanese Army; whilst Mitsubishi was associated with the Minseito (formerly Kensikai) political party and had close links to the Imperial Japanese Navy.
  
  • From the beginning of Meiji the government employed the financial powers of the zaibatsu’s: obtaining loans, especially to prosecute wars, tax collection, military procurement and foreign trade. Their industrial interests were boosted in the 1880s when they acquired factories and enterprises sold by the government. By the late 1920s their range of interests included mining, metals, engineering, electrical equipment, textiles, chemicals, cement, shipping, shipbuilding, foreign trade, banking and insurance.
    ○ Zaibatsus all had a banking arm

Question 37

What was the linkage between rural poverty and political upheaval in the 1930s? What was the linkage between rural poverty and right-wing nationalism?

Answer 37

• Much of the political upheaval of the early 1930s which led to militarism can be traced to the rural poverty of the 1920’s, largely caused by lower rice prices and, at the end of the decade, by a collapse in silk prices. Whilst urban living standards increased significantly with industrial development, a marked decline in the terms of trade for farmers (i.e. rise in input costs to agricultural prices) led to stagnation in the ‘real’ income of people in rural areas. The high growth in population – by 43% between 1900 and 1930 – contributed to the rural poverty.
  
  • As a result of low rice and silk prices in the early 1920’s, farm income was slashed and led to an outbreak of tenancy disputes with land-owners, exposing the inequity of land ownership in Japan. This gave impetus to left-wing rural-based political movements in the 1920s. In response the government established price support schemes to protect farm incomes.
  • While price support schemes did hold up the price of rice for a number of years, growing competition from colonial producers, namely Taiwan and Korea, which the government encouraged for the sake of the urban poor, established an upper limit to prices. A dramatic fall in farm income though occurred with a series of productive domestic harvests from 1927 to 1930.
  • What made the situation worse was that as a result of the Great Depression there was a collapse in the foreign demand for silk and silk prices in the years after 1930. This essentially destroyed the other main source of farm income, which rural communities had come increasingly to depend on.
  • Rural economic hardship created the environment for the rise in patriotic societies and right-wing nationalism that led to militarism. As the army recruited heavily from the countryside it became politicized by a radical nationalism.*
    ○ * The emergence in the 1920s of the political left, associated with tenant farmers unions and with the rise of the Japanese labour movement, was largely and savagely suppressed by means of repressive police powers.

Question 38

What was the government in 1929 and what was their policy?

Answer 38

• In 1929 a new government was formed by the Miniseito Party with the policy of returning Japan to the gold standard. While this policy had been considered earlier in the 1920s, the deterioration in Japan’s external balance and financial instability had thwarted it. The new Minister of Finance, Junnosuke Inoue (1869-1932*), believed strongly in ‘orthodox’ policies of balanced budgets and price stability by fixing the yen against gold at the old pre-war parity.
  ○ * He was assassinated by an ultra-nationalist group.
  
  • To return to gold a deflationary fiscal policy was pursued in 1929 and 1930 just as the Great Depression hit the Japanese economy. This ill-fated return to gold in 1930 saw the yen appreciate in value whilst world demand was rapidly shrinking. In spite of severe depression, Inoue persisted with the policy, raising interest rates, to keep Japan on the gold standard. Not surprisingly, his government collapsed in December 1931.

Question 39

What was the Showa Depression? What was implemented to ease this? What was the nature of these policies?

Answer 39

• In the ‘Showa Depression’ of 1930 and 1931, as it was called, the Japanese economy contracted by about 7%. The incoming government immediately reversed the deflationary policy. The new Finance Minister, Korekiyo Takahashi (1854-1936)* abandoned the gold standard on the first day of office (13 December 1931) and set about implementing a Keynesian style expansionary fiscal policy well before Keynes’ provided a theoretical justification in the General Theory (1936).
  ○ * He was highly experienced, having been a former Prime Minister and Finance Minister, Vice-President of the Bank of Japan and a key financier of the Russo-Japanese war.
  
  • The expansionary policy, opposed by orthodox economists, consisted of a large increase in government expenditure financed almost entirely by borrowing at low interest rates with easy credit conditions. This policy was sustained for five years, bringing about an impressive recovery, with growth rebounding to 8% in 1932 and averaging 5.7% between 1932 and 1936.
  • Besides the expansionary fiscal policy, a cheap money policy was conducted by the Bank of Japan which lowered its discount rate on commercial bills from 6.5% in late-1931 to 3.6% by July 1933. The yen exchange rate was also allowed to depreciate over the course of 1932 by some 60% against the US dollar and over 40% against the pound sterling. Nevertheless, during the recovery retail prices remained subdued and only regained their level of 1929 in 1936.
  • A feature of Takahashi’s expansionary fiscal policy was its military nature, accommodating the demands of both the Army and Navy including new commitments following Japan’s invasion of Manchuria in September 1931.* Government spending on the Army and Navy rose from 31% of total expenditure in 1931-32 to 47% in 1936-37.
    ○ *This invasion was carried out by Senior Officers of the Kwantung Army independently of the Japanese Government who accepted the outcome as a fait accompli. It marks the beginning of the military dictating foreign policy over the civilian government.

Question 40

What occurred in the 1932-36 Recovery?

Answer 40

• A characteristic of the recovery was that the expansion in industrial production was not in the form of consumption goods but rather in the form of munitions and capital goods for industry at home and in Manchuria. This corresponds with evidence of a small increase in the real earnings of workers in general during the period.
  
  • The recovery did not spread to Japanese agriculture. The price of rice did not recover its 1929 level until 1935 and the price of silk remained depressed. The ongoing depression in agriculture led to increased migration from rural areas for employment in urban industry, with females especially going into the textiles industry.
  • A marked increase in the export of manufactures did contribute to the recovery though it was associated with a deterioration in the terms of trade and, thereby, the capacity for the country to purchase necessary imports.

Question 41

What was the dark side of the 1932-36 economic recovery?

Answer 41

• By 1936 economic recovery had been well achieved. Indeed, Japan’s recovery from the great depression was more impressive than most advanced western countries, in no small part owing to Takahashi’s expansionary economic policy. However, the dark side of this policy is that it made it possible for the militarists to prepare for war and pursue their expansionist ambitions in Asia.
  
  • In 1936 Takahashi was proposing to bring the expansionary policy setting to a halt as he believed the economy had by then utilised all its unemployed capacity and a slow down in demand was necessary to prevent unwanted inflation. However, the Army, far from being prepared to accept any limitation on its war-preparations, demanded further increases. The resulting conflict over policy led to an attempted coup d’état by army officers and the murder of Takahashi.

Question 42

What was the state of Japan’s economy 1937-1945?

Answer 42

• With the removal of Takahashi’s opposition, the war expansionist policy continued, placing considerable pressure on Japan’s productive capacity. In 1937 Japan entered into a long protracted war with China that required the reallocation of resources from the production of civilian goods to armaments. With her resources virtually fully employed, growth in the armament industries could come only at the expense of civilian goods production and the export trade.
  
  • To effect this reallocation of material and labour resources, many financial and exchange controls were instituted by a government progressively dominated by the military. Indeed, as the war with China dragged on, and then, after Pearl Harbour, widened into the Pacific War, the strain on Japan’s economy of expanding armaments production intensified, increasingly borne by a reduction in consumption per capita. The purpose of economic development was essentially lost.

Question 43

What were the developments of Japanese industry in the Interwar period (1920s)?

Answer 43

• Notwithstanding the slowdown in Japan’s growth in the 1920s, accompanied by stagnant rural income, manufacturing industry steadily developed.* This is reflected by a three-fold increase in electricity generating capacity over the course of the 1920s, most of it to meet the growing demand for power to operate machinery. In textiles both cotton and silk production nearly doubled while woollens continued to make headway.
  ○ * A primary industry that particularly developed with the assistance of government from the early 1920s was fisheries.
  
  • In the heavy industries pig iron production doubled and that of finished steel increased four-fold, reducing the reliance on imports. Whereas in the early 1920s domestic metal production accounted for 45% of home demand it rose to 70% by the end of the decade. Headway was made in certain engineering fields: electrical and textile machinery, scientific instruments and pedal cycles. Dependence on foreign sources of machine tools though did increase with this industrialization.

Question 44

What were the developments of Japanese industry in the Interwar period (1930s)?

Answer 44

• In the 1930s the industrialisation process intensified with the output of pig iron and finished steel doubling between 1929 and 1936. There was also substantial development in its engineering and machine tools sectors, reflecting much greater technical capability. By 1937 the economy was able to produce most kinds of machinery for its industries, a greater array of machine tools, scientific instruments and electrical apparatus needed for a modern industrial economy.
  
  • There was substantial growth in the chemicals industry, especially in the production of explosives as well as dyestuffs and sulphuric acid. Shipbuilding also grew strongly so that by 1937 Japan had the third largest mercantile fleet in the world.
  • By contrast, the textiles industry grew little except for the woollen, worsted and rayon sectors, which expanded greatly.
  • The armaments industry expanded enormously and progressively in the 1930s.

Question 45

What was the state of Japanese economic development by 1938?

Answer 45

• By 1938 Japan had probably become the sixth largest economy but its living standards were a long way behind that of the advanced Western countries.* While in the 1930s she began to adopt more advanced technologies as the machine-building industry developed, Japan was a long way behind the major industrial countries: labour productivity in Japan was at least half those of most major capitalist economies and one-quarter of the United States.
  ○ * GDP per capita actually overstates Japan’s living standards in the late-1930s because it was nearly a war economy producing a smaller proportion of civilian goods than its capability.
  
  • Japan had established itself as a military power in Asia early in the twentieth century after the Russo-Japanese War. Its economy had become more dependent on its Asian colonies, upon which it mainly expanded its exports in the 1930s and was dependent on for raw produce and war materials. However, its military aggression had put it on a road to utter destruction in which its economy would be destroyed by end of World War II.

Question 46

What happened after Japan’s Defeat in 1945?

Answer 46

• Prior to 1937 Japan’s economic development was associated with success in war and territorial expansion in Asia. Defeat in the Second World War II saw Japan lose her colonies and influence in Asia and her foreign investments, notably in Manchuria and China. Most importantly, the Japanese economy lay in ruins.*
  ○ *There was also a severe reduction in its fishing grounds. Japan was the foremost fishing country at the time (and afterwards).
  
  • U.S. air attack devastated major cities with about 25% of housing accommodation destroyed as well as a high proportion of industrial buildings and plant. About 80% of its mercantile fleet was destroyed so there were severe food shortages.
  • With regard to manpower supply, it is estimated that total Japanese war casualties was about 2½ million. But there were about 6 million returnees, including military personnel, from its former colonies, mainland China and other Asian regions.

Question 47

What were the key features of American Occupation?

Answer 47

• The American occupation, headed by General Douglas MacArthur, Supreme Commander for the Allied Powers (SCAP), was faced with an economy in collapse. The main priority was to organise imported foodstuffs and medical supplies to deal with severe shortages worsened by food distribution problems in feeding those in urban areas.
  
  • At the outset the Allied Powers were not going to assist in Japan’s post-war reconstruction, stating in one directive to SCAP that ‘you assume no obligation to maintain any particular standard of living in Japan’. The initial Allied attitude to Japan was punitive,* reflected by the Potsdam Declaration of imposing reparation payments, mainly to be received by China. However, after the Truman doctrine of March 1947, the US policy toward Japan altered and it became involved in assisting the nation’s recovery as the Cold War unfolded.
    ○ * The attitude is reflected by Joint Chiefs of Staff statement ‘the plight of Japan is the direct outcome of its own behaviour and the Allies will not undertake the burden of repairing the damage’.

Question 48

What were the reforms of American Occupiers in Japan?

Answer 48

• The main objective of the occupation reforms of Japan was to eradicate all the roots of the country’s past militaristic nature. This involved constitutional reform to establish a liberal-based society whilst removing those who held high positions in wartime and were sympathetic to Japan’s militaristic expansionism as well as putting war criminals on trial. The major reforms were:
  ○ Dissolution of the zaibatsu: considered to be major agents behind Japan’s militaristic power and having monopolistic influence over key strategic industries.
  ○ Land reform: a more equitable distribution of land ownership and to improve rights of tenant farmers (including the payment of rent in money not in kind).
  ○ Labour relations reform: freedom of association so trade unions could be freely formed and collective bargaining legally granted with arbitration system for handling labour disputes created.
  ○ Liberal reforms: freedom of speech, publications and assembly (abolishing all existing repressive laws).
  ○ New Constitution: the emperor was made a symbol of the state deprived of any power over policy; political power resided with the executive elected through the Diet; private property rights maintained with ‘just compensation’ to owners when taken for public use; women were given the vote; included a war renouncement statement in Article 9: ‘… the Japanese people forever renounce war as a sovereign right of the nation and the threat or use of force as a means of settling international disputes … land, sea and air forces as well as other war potential will never be maintained’.
  ○ Education reform: loosen government authority over education curriculum; a number of reforms were made to teaching, including of the Japanese language, making it more open to modernisation.

Question 49

What was the pace of Post WWII Recovery?

Answer 49

As discussed in Topic 6, post-war recovery of the Japanese economy was slow, racked by shortages, hyper-inflation and a burgeoning black market. The inflation rate was some 5,800% in 1946, over 100% in 1947, 80% in 1948 and 30% in 1949. In these post-war years production slowly recovered to eliminate the acute shortages

Question 50

What was the Dodge Line?

Answer 50

• The policies of SCAP actually made it more difficult for the Japanese Government to formulate a reconstruction plan for the economy (especially with respect to the zaibatsu). It was only when the United States policy toward Japan changed with the emerging cold war that it assisted in implementing policies to stabilise the economy as a basis for its reconstruction.
  
  • In 1948 SCAP invited Detroit banker, Joseph Dodge, to examine economic conditions in Japan and to propose policies to promote development. He proposed a nine-point stabilization program to arrest inflation, regulate credit and impose budgetary discipline:
    ○ Balanced budget measures such as cutting payrolls, subsidies etc
    ○ Wage and price controls
    ○ Longer hours of work and mass lay-offs to weaken the union movement

Question 51

What was the impact of the Korean War on the Japanese economy?

Answer 51

• Perhaps Dodge’s most important recommendation was to set the fixed exchange rate at 360 Yen to the US dollar, a highly favorable rate which subsequently helped lay the foundation for a more competitive economy to adopt an export-driven growth strategy.
  
  • The Dodge Line, as it came to be called, induced stagnation, deflation and high unemployment in 1949 which checked inflation and enabled management to take charge of operating enterprises as well as restoring profitability and labor productivity in 1950 and 1951.
  • The timing of Dodge’s policies could not have been better as it well prepared the economy to meet the United States large demand for war materials for the Korean peninsula war in 1950. Indeed, the success of the Dodge Line is owed to the Korean War without which the Japanese economy may have otherwise remained in a state of stagnancy for some time.
  • Within a short period of time after the outbreak of the Korean War in mid-1950, the US Army turned Japan into a multi-purpose base for its military operations. The large and urgent demand for war materials, called ‘special procurements’ paid in US dollars, immediately stimulated production by Japanese suppliers. As the war progressed the goods and services in demand expanded over a wide field of economic activities.
  • The Korean War launched Japan’s recovery, providing considerable impetus to many industries. Japan’s automobile industry, for example, acquired the momentum of its early growth from orders for repairing US army vehicles of all kinds it was inundated with during the war. By end of the war in mid-1953 special procurements amounted to 970 million dollars. In 1952 receipts on special procurements accounted for over 60% of the total dollars received by Japan from its international transactions.
  • Japan benefited not only from US ‘special procurements’ but also from a boom in non-military exports with the general upturn in the world economy stimulated by Korean War demand. Over the course of the war Japan’s economy grew by around 10%, quickly eliminating unemployment and inducing stronger investment. There was a massive expansion in the cotton-spinning and synthetic fiber industries; whilst the iron and steel industry is estimated to have expanded by 30% during the war.
  • Japan’s foreign exchange reserves increased by four-fold from 200 million US dollars in 1949 to 941 million by 1951. Given that a major constraint to Japan’s recovery was a shortage of US dollar hard currency to purchase raw material imports to expand its industry, this greatly strengthened the capacity of the country to grow driven by growth in domestic demand.

Question 52

What was the impact of the deflationary policies of the dodge line and the Korean War Boom?

Answer 52

A New Business Confidence Emerges

- The deflationary polices of the Dodge Line followed immediately by the Korean War boom led to a new confidence by the Japanese Government and the business community. Whilst SCAP’s post-war de-concentration policies had broken up parts of the zaibatsu’s it did not affect the large zaibatsu banks and they played a major role in financing Japan’s expansion.
- The new business confidence led to investment to modernize industry with the most productive technology from the United States. Indeed, with the backing of the Ministry of International Trade and Industry (MITI), a rationalization program of the steel industry began in the early 1950s, involving a ten-fold increase in capacity, especially rolling mills. The private banks provided most of the finance, with 15% of the funding provided by the government through MITI. This set a pattern in which major industries in Japan adopted the most modern technology enabled by demand-induced expansion and high profitability.

Question 53

When did the US Occupation end? What was its impact?

Answer 53

• The US occupation of Japan ended in April 1952 following the signing of a separate Peace Treaty in September 1951. Earlier, in 1949, SCAP had already handed over many of its powers to the elected Japanese government toward independence. Under the Treaty, Okinawa (until 1972) and Iwo Jima (until 1968) remained under US occupation, serving as strategic military bases for the United States.
  
  • Whilst Japan did build up its military services (for self-defence purposes), the assurance of United States defence under the Treaty saved the nation’s fiscal budget from having to build up its military defence capability.
  • The US occupation laid foundations for a liberal society with a parliamentary democracy that would culturally westernise the country. It would also unleash a creativity that eventually led Japan to become a significant contributor to scientific knowledge and technological progress.

Question 54

Overall, what was Japan’s ‘Miracle’ of Convergence?

Answer 54

• The economist, Kenneth Boulding, proposed that Japan’s economic achievement post-war was a case of ‘creative defeat’, stating that ‘very often there is the creative reaction to defeat; Japan is an example of a fantastically creative response to defeat’. It was the politico-economic reforms of SCAP during US occupation, the institutional monetary conditions internationally and the long-standing financial support put in place by the United States which gave the Japanese elite the opportunity to rebuild the economy and to develop its potential.
  
  • Post-war Japan possessed a skilled industrial workforce, derived in manufacturing developed from the early in 1930s, and a highly motivated population that wished to achieve a high expected standard of living. Having been given entry into the western capitalist club, Japan took the opportunity provided by unprecedented global demand growth of the golden age. Contrast this with the inter-war period.

Question 55

When was Japan’s Period of High Speed Growth?

Answer 55

• By the end of the Korean War Japan’s industrial output had expanded by more than 50% and GDP-per capita had reached its pre-war level of 1937. However, the intense inflationary pressures of the war had impaired its competitiveness and Japan’s export trade stagnated so producing pressures on its balance of payments. To deal with this the government imposed a sharp deflationary monetary policy to restore competitiveness that caused a short post-war downturn.
  
  • By 1955 the economy, re-equipped with modern technology, resumed its expansion unaided by war demand at a faster rate then before. This expansion marked the beginning of what was called the ‘miracle’ of high-speed growth, sustained until 1973. Over that period growth averaged 9% per annum. Greatly assisted by buoyant world trade, foreign demand was a major source of this growth with average annual export growth of 15% over this period.
  • Japan’s high speed growth of 9% over an 18-year period is historically unprecedented. To get some historical perspective, had Japan’s growth of the ‘golden age’ been such as to maintain the average trend rate of 3.3% achieved in the period 1886-1936, her Maddison GDP Index with 1913 being the base year normalised to 100 would have been 834 in 1973. Instead, high speed growth saw the index reach 1775, implying over twice the income per capita.
  • There is little doubt that a major contributing reason for this achievement is the extraordinary growth of all the advanced capitalist countries sustained during the ‘golden age’ associated with even stronger growth in international trade. This is reflected by the extraordinary growth of Japan’s exports of manufactures, which played a key role in its high speed growth.

Question 56

What was the contribution of export growth to high speed growth?

Answer 56

• Whilst export growth was a major contributor to Japan’s high speed growth the proportion of exports to GNP was lower in the post-war era than pre-war. Whereas pre-war the proportion was above 20%, post-war it was 10%. This indicates that the growth in domestic demand played a prominent role, driven by a high rate of investment. Indeed, in the golden age, gross capital expenditure as a proportion of GNP was between 30% to 40%.
  
  • Not only did export growth reflect the considerable contribution of foreign demand which stimulated the great expansion of its manufacturing industry, it removed the balance of payments constraint to acquiring the imports required by its industry. A major change in Japan’s foreign trade is that whereas pre-war it was mainly conducted with undeveloped Asian countries, after the war it was predominantly conducted with advanced countries.

Question 57

What were Japanese trade policies during the Golden Age? What were the scope of exports?

Answer 57

• In the 1950s Japan maintained stringent controls over foreign trade and exchange transactions which were eased somewhat during the 1960s. Through MITI the Japanese Government skilfully manipulated controls to assist exports and discourage imports not required by industry.
  
  • During the ‘golden age’ the scope of Japan’s exports greatly expanded from textiles to light manufacturing consumer products and heavy engineering products. In the 1950s prominent exports were sewing-machines, clocks, cameras, watches, motor cycles, electronics and ships. By the 1960s they widened to include a range of engineering products, including machine tools, industrial machinery and motor cars as well as steel. A characteristic of Japanese consumer goods for export was their high income-elasticity of demand in relatively affluent advanced countries.

Question 58

What was the structural and demographic change associated with high speed growth?

Answer 58

• High speed growth was accompanied by a massive industrial transformation of Japan. Whereas over 50% of the working population was employed in ‘agriculture and forestry’ in 1947, by 1965 this fell to 23% and then to 10% by 1979. As expected, the proportion employed in ‘manufacturing and construction’ increased from 20% in 1947 to 31% by 1965 and 34% by 1979. Reflecting the growth of domestic consumption and financial services, the proportion employed in ‘distribution (retail and wholesale) and finance’ increased from 6% in 1947 to 20% in 1965 to nearly 26% in 1979.
  
  • This structural change in industry was associated with rapid urbanisation and, indeed, urban development, as people migrated from the rural areas for better-paid employment in urban manufacturing and services. In the post-war period, the rate of population growth increased for a decade after the war before slowing down. Over the period 1947-1973 it averaged 1.3%, consistent with Japan’s pre-war trend rate.

Question 59

What were the major contributing causes for Japan’s High Speed Growth? How did living standards change?

Answer 59

• Strong global demand generated by advanced capitalist countries during the ‘Golden Age’ (see topic 6). This was the major cause contributing to Japan’s export growth
  
  • A highly favourable yen exchange rate fixed under the Bretton Woods system assisted export performance
  • High productivity growth in Japan’s manufacturing industry and, especially, in its export sector, which, with relatively lower wage levels, kept industrial costs competitive.*
    ○ *While productivity growth is exceptional in manufacturing in Japan’s retail, wholesale and distribution service industries, it remained very low.
  • High rate of private investment to equip Japanese industry with modern technology, based on business expectations of ongoing demand growth and high profitability.
  • Growth in household consumption averaged a massive yearly 14% between 1955 and 1973, reflecting the growth in income per capita as stemming from labour-productivity growth.
  • In the golden age Japan’s living standards increased by more than any other advanced capitalist country so that by 1973 it was approaching that of the European capitalist countries. By 1989 its GDP per capita exceeded that of the European countries.

Question 60

Why did Japanese High Speed Growth end and when?

Answer 60

• Japan’s high speed growth ended with the oil price shock of 1973, which ended the ‘Golden Age’ of capitalist growth worldwide. The Japanese economy was particularly vulnerable to the four-fold increase in oil prices because she imported all her oil and the industrial structure of the economy was highly dependent on oil-based energy. In 1974 it experienced stagflation, with a contraction in activity and the inflation rate reaching nearly 25%. In the years 1973 to 1977 the rate of inflation averaged some 13%.
  
  • Though the Japanese economy did recover quite impressively after 1975 and the inflation rate came down after 1977, the average growth rate over the remainder of the 1970s was only 3.6%. The trend growth rate over the period 1974-1989 was 3.9%. And while this growth performance was better than any other advanced capitalist country, it was well below the high speed growth of the golden age.

Question 61

What was the nature of the fiscal problems which constrained the Meiji Government from its beginning in 1869 till well into the 1880s from pursuing more vigorous policies for the economic modernisation of Japan?

Answer 61

○ Could not use customs duties as a form of raising revenue (forced into treaties)
§ Common way for developing countries - can protect infant industries and obtain finance
○ Used land tax
○ Not until 1870s: second half that they were able to start collecting more solid tax revenue
○ Incurred a lot of public debt problems: had to provide pensions to samurai class
○ Had to compensate the Daimyos for buying out their fiefdoms
○ Although they inherited the Daimyos revenue, things were not organised
○ Had to Finance War: 1869-70 war in central north, another rebellion in 1877 (Satsuma rebellion)
○ These fiscal problems relied on loans from foreign merchants, Edo merchants, and a lot relied on printing money -> very inflationary
○ Government wanted to spend money to try and create early industries
○ Provided subsidies to promote Western technical institutions and bring technical advisors from the West
○ Very difficult for the Japanese early on
○ Stable revenue not achieved until late 1870s - widened tax onto luxury items (Sake, tobacco)
○ Initially used banking system to help finance their debt
§ If private banks buy debt, they can then issue fiat
○ 1880s: Industries beginning to adjust and produce more goods
○ Create BoJ to try and absorb all inconvertible goods - replaced with convertible notes (convertible into commodity such as Silver)
○ Sino-Japanese war financed with debt - then indemnity

Question 62

2. What were the main causes of the economic malaise of Japan in the 1920s?

Answer 62

○ Consequence of stagnation in heavy industries after the end of World War I - after the loss of demand
○ Heavy industries go into trouble -> banking sector (bad debt) -> financial instability
○ Decline in world agricultural prices (especially rice in the 1920s)
○ Cost of finance tends to increase as well
○ Balance of payments deteriorates, associated with stagnation
○ Japan is less competitive -> enters period with less inflation
○ Banking crisis, Government attempts to go back onto gold standard with deflationary policy in 1929 followed by the Great Depression

Question 63

Explain the impressive recovery from the ‘Showa Depression’ and industrial development of the Japanese economy in the 1930s?

Answer 63

○ Owed to policy - the finance minister Koreko Takahashi who ran a Keynesian style policy
○ Abandoned the gold standard so they could lower interest rates
○ Allowed yen to depreciate -> export boost
○ Fiscal policy: 1932-1936: Cheap money & expansionary fiscal policy
○ Much of policy was militaristic in nature
○ Involved in expenditure about war
○ Expansion in Industrial production was most of the recovery
○ Recovery did not spread to Japanese agriculture & price of silk remained depressed
○ Dark Side: accommodated the military

Question 64

4. What were the factors which explain Japan’s post-war recovery and then high-speed growth sustained from the mid-1950s to early 1970s?

Answer 64

○ Strong demand driving trade
○ Strong consumption growth
○ Golden age: all countries committed to growth - Japan could take advantage of that