This dissertation has been 65—3876 microfilmed exactly as received

KOIZUMI, Kihei, 1924- JAPAN'S ECONOMIC GROWTH AND BALANCE OF INTERNATIONAL PAYMENTS IN THE 1950'S.

The Ohio State University, Ph.D., 1964 Economics, general

University Microfilms, Inc., Ann Arbor, Michigan JAPAN'S ECONOMIC GROWTH AND BALANCE OF INTERNATIONAL PAYMENTS IN: THE 1950'S

DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosoi^ in the Graduate School of The Ohio State Ihiversity

• By Kihei Koizumi., 6. Econ., L.L.B., M.S.

******

The Ohio State DniTersity 196U

Approved by

Department of Ecwomios VITA

October 19t J92h B o m - Takasaki, Japan 19U 8...... B, of Boon., %ushu IMiversity, Fukuoka, Japan

IS h P...... L.L.B., Kyushu diversity, Fukuoka,. Japan 1950- 1952. . . . Reporter, Noda Economic Research IhstLtute, Tolgno

1 9 5 k...... M.S., Buoknell Itaiversitgr, Letiisburg, Pennsylvania

195k-a958. . . . Instructor, Reitaku University, Kashiwa, Japan

1959-1961*. . . . Assistiant Instructor, The Ohio State University, Columbus, Ohio

FIELDS OP STUDY

Major Field: International Trade and Finance Studies in Economie Theory Studies in Honey and Banking Studies in Economie Statistics Studies in Personnel Management

ii CONTENTS Chapter Page CRB ISTRQDUCTKlî...... 1 Statement of the problem ...... 1 Terms and definition ...... U Methodology...... 6 Order of presentation In subsequent chapters...... 8 TWO JAPAN'S BECOBD (F ECONCMIC GROWTH...... 9 Economie growth before the Second World War...... 9 Destruction during World War H and reconstruction in th e early postwar period...... 26 Economic growth In the 1950's...... UU Summary...... 50 THREE ANALISIS Œ" FACTORS RELATED TO JAPAN'S RAPID ECONOMIC GROWTH IN THE 1950*3 ...... 5U Institutional changes due to Japan's defeat in . World War II ...... 5U 1. Breakrup of the Zalbatsu 2. Agricultural land reform 3. Encouragement of the unionization of labor U. Cessation of Japan's colonial outlay 5, Absence of heavy military expenditure U. 8. economic aid to Japan and Special Procurement. , 62 Expansion of the world economy...... 65 Fiscal and monetary policies of the Japanese government ...... 66 1. Anti-recession measures, 1952-1953 2. Restrictive measures, 1953-195U 3. Stabilization measures, 1955 U. Measures for expansion, 1956-1957 5. Restrictive monetary measures, 1957-1958 6. Measures for rapid and stable expansion, 1958-1959 High rate of capital formation...... 83 Tecbnologieal innovation and changes in industrial . structure...... 86 Abundant labor and the dual structure of the Japanese economy ...... « ...... 90 iii CONTENTS (CONTINUED) Chapter Page Expansion of domestic market...... 9$ Bapid increase in exports...... 96 Summaxy...... • • 99 FOUR JAPAN'S BALANCE OF INTERNATIONAL PAYMENTS...... lOU Balance of payments analysis ...... lOU The prewar balance of payments...... 105 The balance of payments between 191*6 and 191*9. .... 109 The balance of payments in the 1950's...... 116 1. The balance of payments in the 1950-1952 period 2. The balance of payments in the 1953-1956 . period 3* 13ie balance of payments in the 1957-1959 period Summary...... 128 FIVE AN ANALYSIS OF THE MAJOR ITEMS IN TUB JAPANESE BALANCE OF PAYMENTS IN THE 1950'S: MERCHANDISE T R A D E...... 131 Comparison of prewar and postwar Japanese trade. . . . 131 Commodity composition of Japanese foreign trade. . . . 131* Oeograiâiioal Pattern of Japanese foreign trade .... 11*2 Japan's trade with Communist China and USSR...... 11*6 Japanis trade with the United States of America. . . . l5l Basic factors related to rapid expansion of Japanese exports...... 156 1. Improvement in Japan's competitive position in the world market ■ 2. Changes in world demand and the structure of Japanese exports Summary...... 167 SIX ANALYSIS OF THE MAJOR ITEMS IN THE JAPANESE BALANCE CF PAYMENTS. IN THE 1950'S: NCN-MERGHANDISE ITEMS CF THE CURRENT ACCOUNT...... 170 Over-all balance of non-merchandise items of the current account...... 170 U. S. Special Procurement expenditures ...... 171 Shipping account...... 172 Investment profits and royalties...... 175

iv CONTENTS (CONTINUED)

Chapter Page SEVEN m L Z S I S OF THE MAJOR ITEMS IN THE JAPANESE BALANCE (F PAYMENTS IN THE 1950'S: CAPITAL MOVEMENTS...... 177 Regulations coneenxLng foreign investment...... 178 Introduction of foreign teobnologjr ...... 179 Importation of foreign capital...... ; . . l80 Japan's foreign investment. . . 182 EIGHT POLICIES APFECTINQ JAPAN'S BALAIfCE OF INTERNATIONAL . . . RAIMENTS...... 185 Japan's foreign exchange and trade c o n t r o l ...... 185 1. Concentration of foreign exchange holdings 2. Foreign exchange budget 3. System of import control U* System of export control Export promotion measures...... 189 1. Export-Import Link System 2. Government fiscal aid to exporters 3. Special bank financing system for export business U. Export risk insurance system Japanese tariff system...... 191 The critical problems of foreign discrimination against Japanese exports...... 19U 1. The United States 2. Countries of the European Economic Community 3. The IMted Kingdom Û. Other European countries 5. Asian countries Summary ...... 201 NINE PROSPECT OF JAPAN'S ECONOMIC GROT/TH AND BALANCE OF INTERNATIONAL PAYMENTS: ANALISIS OF TEN-IEAR INCOME DOUBLING FLAN...... 203 Background of the plan...... 203 Goals of the plan for economic growth ...... 206 Goals concerning.the balance of payments...... 212 International economic cooperation for . underdeveloped nations...... 217 Summary...... 217 CONTENTS (CONTINUED) Chapter Page TEN THE JAPANESE ECONOHT IN THE EARLT 1960*8...... 219 The world trend toward trade llberaUzation and Japan...... 219 Japan's liberalization program ...... 221 1. Import liberalisation 2. Foreign exchange liberalization 3* liberalization of capital movements Economic. gr o w t h ...... 223 Balance of payments...... 226 Comment on the Ten-Year Income Doubling Plan.... 231 Summary...... 23U EIEVm SUMMÂEY AND CONCLUSim ...... 236 Early econcmic growth of Japan...... 236 Japan's economic recovery and growth after World War n ...... 237 International trade and economic growth...... 2U0 Capital imports and recent capital exports . . . . . 2UU Policies: international trade and finance. . . . 2l|6 Economic growth: recent plans and achievements . . , 2U? Conclusion ...... 250 BXBUOGRAPHY ...... 253

vi U S T OF TABLES Table Page 1. Annual Growth Hate of Gross National Product for Advanced Countries, 1870-1938...... 10 2. Annual Rate of Increase in Industrial Production for Advanced Countries, 1901-1938 ...... 11 3. Quantity Indices of Trade of Japan Proper with Foreign Countries, Korea, and Formosa, 188^-1938. . • 12 U. Overseas Trade of Japan Proper as a Percentage of Net National Product (Tanada Estimates), 1885-1938. . 13 5. Relative Indicators of General Consumption Level, Major Countries, during 193U-1938 ...... 17

6 . Current and Real Gross National Product, Japan, 193U-1950...... 28 7. Percentage Distribution of Gross National Product by Expenditure, Japan, Selected Tears 193^-1949 . 29

8 . Indicators of the Postwar Inflation, Japan, 19U $-19$0 ...... 35 9. Indices of Output by Industry, Japan, Selected Tears, 193U-1950...... 38 10. Current and Real Gross National Product, and Growth Rate, Japan, 193U-1936, 19U9-1960...... U5 11. Population, Real Per Capita Gross National Product in 1950 Prices, and its Growth Rate, Japan, 193U-1936 and 191*9-1960 ...... 1*8 12. Total and Per Capita National JDticome Expressed in D. S. Dollar, and Population, Selected Countries, in 1959 ...... 1*9

1 3 . U. S. Economic Aid to Japan and its Ratio to Japan's Total Imports, 191*6-1952...... 63

vil LIST OF TABLES (CONTINÜSD) Table Page lU. Japan's Foreign Eacehange Receipt Through Special Procurement and its Ratio to Total Foreign Bxehange Receipts, 1950-1959...... 61*

15. Wholesale Price Index, Selected Countries, 1950-1960 ...... 67 16. Gross Domestic Capital Formation Sector and Purpose, Japan, 1^1^9-1960 ...... 61* 17. Index of Private Residential and Equipment Capital Formation In Constant Prices, Japan, 19U9-1960. . . . 85 18. Percentage Distribution of Manufacturing Production by Industry, Japan, Selected Tears 1930-1959. .... 89 19. Balance of 3htemational Payments, Japan, 1936. . . . 108 20. Balance of International Payments, Japan, 191*6-191*7 . 111* 21. Gold and Foreign Exchange Reserve, Japan, 191*9-1959 . 117 22. Balance of Intematicmal Payments, Japan, 1950-1952 . 120 23. Balance of International Payments, Japan, 1953-1956 . 123 21. Balance of International Payments, Japan, 1957-1959 . 127

25. Talus of Japanese Merchandise Trade and Idle Quantity Index, 193U-1936 and 191*9-1959...... 132 26. Percentage Distribution of Japanese Ebqports by Commodity, 193U-1936 and 1950-1959...... 135 27. Percentage Distribution of Exports by Commodity, Major Industrial Nations, Selected Tears 1928-1959. , 136

2 8. Quantity Index of Japanese Exports by Commodity, Selected Tears 193U-1959...... 138 29. Value of Ten Leading Commodities Exported from Japan and. their Ratios to Total Exports, 1959 .... 138 30. Percentage Distribution of Japanese Imports by Commodity, Selected Tears 193U-1959 ...... 11*0

viii LIST CF TABI£S (CONTINUED) Table Page 31. Quantity Index of Japanese Imports by Commodity, Selected Tears 193U-1959* ...... 1Ü1

3 2. Values of Ten Leading Commodities Imported and their Ratios to Total Imports, Japan, 19$9...... 1^2

3 3. Peroentage Distribution of Japanese Trade by Region, 193U-1936 and 1959...... 11*3 3U. Values of Japanese Exports to Ten Leading Countries and their Ratios to Total Exports,U959 ...... 11*5

3 5. Values of Japanese Imports from Ten Leading Countries and their. Ratios to Total Imports, 1959 . . 11*7

3 6. Value of Japanese Exports to USSR by Commodity, Annually 1957-1959...... 152

3 7. Percentage Distribution of Japanese Exports to the United States in the Prewar and Postwar Periods . . . 151*

3 8 . Export Price Index of Selected Countries, 1953, 1955, 1957, and 1959...... 157

3 9. Percentage Distribution of Japanese Exports, and Rates of Increase in Japan's Exports and Foreign Markets' Imports, by Geographic Area, 1953-1958 . . . 162 1*0. New Export Items for Japan and their Amount of Exports, 1 9 5 1 , 1953, and 1959 ...... 16^ 1*1. Export Structures of Japan and World, and Japan's Export Specialization Coefficients, 1953 and 1958 • • 166 1*2. Receipt and Payment in the Non-Merchandise Items of the Current Account, 1950-1959 ...... 171

1*3. Japan's Foreign Exchange Receipts through U. S. Special Procurement, 1952-1959...... 172 1*1*. Receipt and Payment in Shipping Account, Japan, 1 9 5 0 - 1 9 5 9 ...... 171 * 1(5. Receipt and Payment in Investment Profit Account, Japan, 1950-1959...... 176

ix U S T CF TABLBS (CCNTlirUED) Table Page U6. Foreign Investment in Japan, 19^0-19$?...... I8l U7* Hajor Eeonomio Indioators of Ten-Tear Incone Doubling Plan ...... 208 U8. Estimated Japan's Balance of International Payments in 1970 ...... m U9. Balance of International Payments, Japan, 1960-1962 . 227 50. Receipts and Payments of Foreign Exchange and Foreign Exchange Reserve, Japan, 1960-1962...... 230 cokFsm

imODUCTIOH statement of the problem In the decade of the 19^0* s Japan achleved a more rapid rate of économie growth than asgr other leading indnetrial nation. In real terme, Japan*s groas national product increased at an average rate of 9.!*$ per cent^ compared with 8 .0 U per cent for Vest Germany.^ the economic condition in Japan at the end of World War II seemed so hopeless that reconstruction up to the prewar level was predicted to take several decades. The real gross national product in 1 9 W -was 61*, per cent of the 193k~1936 level, and less than half the prewar peak in 1939. furthermore, Japan lost $2 per cent of its former territory and within an area of only 12*2,61*1* square miles, which is smaller than the state of California, a population of 7$ million had to be fed.

^Keiaal Yooran 1 9 ^ (Major Economic Statistics 1962), Research Bureau, ^anomic Planning Agenqy of ^ e Japanese Government, Tokyo: 1962, p. 27. ^Bank for International Settlement, Thirtieth Annual Report, June, i960 , Basel, Switzerland, pp. l*-5. 2 The rapid eoonomio growth of Japan and the analysis of the main économie factors idiioh have brou^t about this growth are the subjects of this study. It may indicate some recent trends, throw light on the prospects of Japan's future econony, and provide guides for future economic policies. A great controversy has been going on among leading economists about Japan's economic growth and, especially, about the future growth capability of the Japanese econouy. While the stu^y of Japan's ecwomic growth is a huge project, some of its basic parts can be separately analyzed. One important part is its international trade. Japan is probably more dependent on imported raw materials than most of the leading industrial countries. Japan is sometimes called an economic paradox. Even as the world's largest textile exporter, she has to import all of her raw cotton and wool. About four-fifths of all the industrial raw materials for Japanese industries must be imported. These include not only cotton and wool but also all of the raw rubber, tin, nickel, and bauxite; 9$ per cent of the petroleum and 80 per cent of the iron ore.^ Japan is also a world leading steel-producar and ship­ builder. In order to import commodities necessary for its economic growth, Japan has to earn enou^ foreign exchange by exports of merchandise and other services to pay for them. International trade is vital to Japanese economic well-being.

^bhen, Jerome B., Japan's Postwar Econ<»y, Bloomington, Indiana: Indiana University ^ress, 19^0, p. UL. 3 For rapid économie growth, r^»id eajMuuibn of foreign trade ie neoeeearj. Japan's average annual rate of increase in merchandise eo^orta was 6.^ per cent for a period between 1873 and 1937» compared y with 2.1 per cent for the world in the sane period. In the 1950's the volume of Japanese exports increased at an average annual rate of 16.7 per cent while that of world exports increased at 6.5 per cent. However, the quantity index of Japanese exports reached the prewar level only in 1959, and Japan's share in world trade in 1959 was only 3*U per cent for both eoq)orts and imports as compared with 5.3 per cent for exports and U.6 per cent for imports in 1938.^ Fifteen years after the Second World War, Japan has not yet regained its prewar share in world trade, in spite of its rapid economic growth and foreign trade expansion. Moreover, the unfavorable balance of international payments and the heavy losses in foreign exchange reserves in 1953 and 1957, which were due to excessive imports over e:q>orts, forced the govern­ ment of Japan to adopt to a drastic policy of credit restriction with the result that the economdc growth of Japan was temporarily held down for the sake of long-run stable economdc growth. On the other hand, when there was a large favorable balance of trade, the government tried to speed up economdc growth by a liberal credit

^Kanameri, HLsao, Idhon no Booeki (Japan's Foreign Trade), Tolqroî Shiseidoo, 1961, p. 18. — — ^Matsui, Kiyosbi, ed., MLhon Booeki Dokuhon (A Reader on Japan's Foreign Trade), Tokyo* Tooyoo Eeisai Shinpoosha, 1961, pp. 50 and 126. policy and by enoonraging importa of necessary materials. The balance of international payments was the indicator limiting the rate of economic growth at one time and stimulating it at another. Even though the title of this study indicates a concern with both the eeonomio growth of Japan and its balance of inter­ national payments, more emphasis is placed on the analysis of the latter. Japan's economic growth in the 19^0's is mainly analysed statistically in terms of its balance of international payments with necessary reference to theoretical explanations. It includes an examination of various measures taken by the government for the purpose of promoting foreign trade and economic growth. It is concerned also with the projection of Japan's future economic growth and the balance of international payments, and with policies to achieve the goals for the future economy of Japan.

Terms and definition It is necessary at the outset to make clear the definitions of various terms which will be used frequently in this study. First of all, economic growth is regarded as an enlargement or eoqpansion of a national economy in the course of time. In order to measure the growth of am economy it is customary now to use the concepts of gross national product or national income. Gross national product is the total market value of all goods and services produced in one year, while national income is the total income generated in the process of production in the same period. Statistically the gross national product is equal to the sum of the national income. 5 depreciationj and indirect taxes. For both the gross national product and the national income, however, there is a distinction between the nominal and the real. The nominal is the amount valued at current prices and the real is valued at constant prices, that is, with adjustment made for changes in the price level. In short, eeonomio growth is defined as an increase in the real gross national product or the real national income within a certain period of time, and the annual rate of this increase is called the econ

^Kuznets, Simon, Six Lecturw on Economic Growth (Japanese translation), Tokyo: Qanshoodoo, 1961, pp. 11-12. 6 In the balance of international payments the total amount of the credits is always theoretically equal to the sum of the debits. Thus, the terms "favorable" and "unfavorable" are meaningless vhen applied to the balance of payments. However, as Towel points out, these terms have been used with reference to the balance of payments when they are applied to a condition where credits on current transactions, unilateral transactions, and long-term capital accounts do not equal the amount of the corresponding debits.^ The terms "current transaction," "unilateral transaction," and others will be defined in later chapters, but the distinction may be pointed out now between the balance of international payments and the balance of trade. The balance of trade conprises only merchandise accounts while the balance of peyments includes all the international economic transactions of a country. The term "favorable balance of trade" means an excess of merchandise exports over merchandise imports whereas "unfavorable balance of trade" refers to an excess of merchandise imports over merchandise imports over merchandise e:q)ort8.

Methodology As pointed out above, it is the basic purpose of this study to analyse the relationship between Japan's rapid economic growth and the balance of international payments in the 19^0's. This purpose makes

^owel, Lawrence W., International Trade and Ct^ercial Policy, 2nd ed.; Hew York: Harper & Brothers, 1956, p. 80. 7 an wpirlcal analysis or statistical analysis the principal method to be followed. However» how to classify, coiqpare» and analyse varions statistical data must be guided in part by modern theories of eeonomio growth and balance of international payments. Economic growth and the condition of the balance of inter­ national payments may be regarded as an integral result of the over­ all economic activity which involves not only the simple flow of Mtonvf, goods, and services, but also the constant changes in the structure of the economy, such as the structure of industry, consumption, or foreign trade. Therefore, while the analysis of the quantitative relationships among various economic variables during the course of time is very important, the analysis of the qualita­ tive changes in the structure of the economy will be also emphasised, that is, these two approaches will be comibined. Concerning the statistical data, it is necessary for correct interpretation of the data, to ascertain various points such as mwthod of compilation, degree of coverage, and system of valuation. World War II caused great changes in Japan's political and economdc jurisdiction in the world and it is almost impossible in somie instances to make exact statistical comparisons between the prewar period and the postwar period. Also, Japanese statistics have undergone substantial modifications for the sake of improvement. For the early prewar period mtany statistical data have to be regarded as rough estimates and the manipulation of such data tends to widen the margin of error. Recognising these problems and also the necessity 8 of ufling the beat aTaiUble atetiatleal data, qualifieatlona. irlll be attached to their xue «henever it seeaa neceaaary.

C^der of presentation in shbaeqiient cbapiera The eeonomio problems facing Japan, a abort hiatory of its economic development, and an analyaia of the main canaea for its rapid grovth in the 19$0'a are anrv^ed in Chapters Two and Three, and the condition of the balance of international payments is isolated in Chapter Four. This balance-of-payments condition is then subjected to detailed analyaia for which purpose it is divided into three main sectors: the merchandise trade (Chapter Five), the non-merchandise items of the current account (Chapter Six), and the capital account (Chapter Seven). Conditions and policies which affect Japan's balance of payments condition are examined in the Eighth Chapter, and the government's plans and estimates for économie growth and balance of payments are covered in Chapter Nine. Some evaluation of these plans and estimates is provided by a survey of actual developments during the first three years that the plan has been in effect in Chapter Ten. Chapter Eleven contains a summary of the above material and some suggestions on the policies necessary to maintain continuing rapid economic growth. CH&PTER TWO

JAPAN'S RECORD OF ËC01S3H1C (ffîOHTH

EcoiUMdo growth before the Second fforia' v û T ------In. order to make a satisfactory analysis of Japan's rapid econMtie growth in the 19$0's, it is necessary to examine the record of growth in the prewar period, the conditions during the war, and the reconstruction immediately after the war. The economic growth rate in Japan was rather high even in the prewar period. With the establishment of a modern government in 1868, Japan emerged from a state of economic isolation and from the stage of an agricultural economy tocbecome one of the industrial nations in the world within a relatively short period of time. According to estimates of Japanese national income for the early prewar period, the average annual rate of economic growth in terms of the real national incmme was U.l per cent for the period between 1870 and 1913, and per cent for the period between 1913 and 1938. To compare Japan's economic growth rate with that of seme advanced countries, for the period 1870 and 1913 it was U*3 per cent in the United States and 3.0 per cent in Germany. The rate of growth of the Ihxited States was higher than that of Japan but the

9 10 average rate of eleven Western advanced eonntrles as shown in Table 1 was 2.6 per cent from 1870 to 1913. For the period between 1913 and 1938 the average rate of growth of twelve countries (with Canada added) was only 1.6$ per cent compared with U.$ per cent for Japan.

Table 1 Annual Growth Hate of Gross Rational Product For Advanced Countries, 1870-1938 Country 1870-1913 1913-1938 Austria 3.7$ 2.1$ Belgium 2.2 1.0 Canada - 1.7^^) Denmark 2.8 2.1 France 1.1 1.1 Germany 3.0 1.3 Holland 2.3 2.1 Norway 2.3 1.9 Sweden 2.0 1.9 Switserland 2.6 1.6 United Kingdom 2.1* 1.0 %ited States U.3 2,0 Japan'®' U.l U.$

(®)orowth rate in the real national income. (b)por 1911-1938. Source: Shinohara, Myohei, Nihon Keiaai no Seio^hoo to Junkan (Growth and Cycle of Japanese Economy), Tokyo: Soobunsha, 1961, p. 6.

In terms of the Industrial production index, the annual rate of increase in Japan was more spectacular. For the period between 1901 and 1938 it was 8.92 per cent coo^pared with only 2.39 per cent for eight Western advanced countries as shown in Table 2. Only in IX the short period between 1921 and 1929 was the Japanese rate exceeded by other countries in the grovqp.

Table 2 Annual Rate of Increase in Industrial Production For Advanced Countries, 1901-1938 Country 1901-13 1913-38 1901-38 1921-29 Belgium 3.81*^ 0.$1% 1.58% 9.31% Canada - 2.68 9.98 Denmark - 3.84 - 6.06 France U.2$ 0.47 1.68 8.33 Germaiy U.71 1.68 2.65 7.98 Italy 5.50 2.27 3.31 6.99 Luxemburg 7.3U 0.17 2.10» 13.22 Norway 4.88 1.94 2.88 4.30 Sweden - 3.34 - 8.59 Ibited Kingdom 2.37 1.56 1.89 4.81 Iftiited States 3.60 1.44 2.65 6 .4 2 Japan 11.00 7.89 8.92 9 .4 2

Source: Ibid., p. 8.

Since Japan's rapid eeonomio growth and increase in industrial production in the prewar period was achieved mostly through industrialization, introduced from Western countries, international trade had played a significant role in the economic development of Japan. The quantity indices of Japanese foreign trade indicate that the volume of exports increased by more than 30 times and that of inq>orts by more than 20 times during the period between 188$ and 1938 as shown in Table 3 Thus, one would expect to find that the share of exports and inports in the national income would be much greater in the later prewar period than in the earlier period. 12 Beginning almost from zero In I960, both Imports and exports reached 20 per cent of the net national product in the 193$-1938 period as Indicated In Table U*

Table 3 Quantity Indices of Trade of Japan Proper with Foreign Countries, Korea, and Formosa, 1885-1938 (1910-11»-100) Annual average Imports Exports 1885-89 16 16 1890-9U 25 21 1895-99 1»6 31 1900..0h 56 1»6 1 9 0 5 -0 9 87 61 1910-lh 100 100 1915-19 121» 168 1920-21» 190 U»2 1925-29 2l»2 217 193 0 -31» 277 327 1935-38 3l»7 5 0 5

Source: Lockwood, MLlliam W,^ The Economic Jersey: i^rinceton t^ilvarsltj Press, 195U, p. 313.

Furthermore, It is Important to note that both exports and Imports changed radically in character through the prewar period.

In 1 6 7 8 -1 8 8 2 exports were about equally divided in value between raw products and manufactures (including semimanufaotares); imports were composed of over 7$ per cent of manufactures. By

193 ^-193 8 * however, 8^ per cent of the total exports were manufactures and 62 per cent of the imports consisted of raw products. That is, Japanese industries now obtained a great deal of their raw materials from abroad vhile, at the same time, the X3 products of their Industries were increasingly e^qported to foreign countries.^ Japan's share in the world trade in 1938 «as 5*3 per cent for exports and U*6 per cent for iiqports. Japan was the fourth largest eq)orter in the world, with the Iftiited States, the first (lU*9 per cent); England (11.1& per cent)} and Germany (10.8 per cent).^

Table U Overseas Tfade of Japan Proper as a Percentage of Net National Product (Taaada Estimates), 188S-1938 Annual average Exports Imports 1885-89 5.9^ 5 . U 1890-91» 6.3 6.2 1895-99 8.3 10.5 1900-01» 10.7 12.0 1905-09 13.2 15.1 1910-11» ll».8 15.8 1915-19 21.8 18.8 1920-21} 15.2 19.3 1925-29 18.3 20.9 1930-31» 17.1 18.1} 1935-38 20.5 21.0

Note: The percentage ratios of eoqports and imports relative to the net national product are based on the current yen value. Source: Ibid., p. 31$.

^Lockwood, Villiam W., The Eeonomio Development of Jap^ , Princeton, New Jersey: Princeton ibiversiiy Press, l9$!», p. 3$U. ^Inaba, Hidezoo, ed., Gendai Nifaon Keiza^on (Modern Economy of Japan), Tokyo: Shiseidoo, 1958, p. 13U* "ih So far the over-all picture of Japan's economic growth* the expansion of her industry and international trade for the period between 1868 and 1938 has been briefly explained. However* nothing was mentioned about the population of Japan. Population is one of the most inqportànt factors that affects economic conditions in any country. For Japan it is particularly important* since Japan is regarded as an over-populated nation. Mr. Joseph M. Dodge* former financial adviser to General HacArthur for reconstruction of the Japanese economy in 19U9 and 19^0* once said: "The fundamental problem for Japan can be expressed in the simple terms of too many people* too little land and too few resources. These combine to press heavily on every circumstance of national life."^ This state­ ment holds true not only for the war-devastated Japan immediately after World War II* but also for the prewar condition of Japan. As already pointed out* Japan's economic growth rate in terms of the aggregate national income was much higher than that of any other nation for most of the period between 1868 and 1938. However* during approximately the same period the Japanese population more than doubled* that is* increased from 3U.8 million in 1872 to 70.^3 million in 1938.^ Therefore* the rate of increase in the real per capita national income in this period is less than half of the rate

^Dodge* Joseph M.* Japan: Its %oblems, I^ogress and Responsibilities * Address before tke M t k Annual Banquet of the imwican Institute of Banking* New York* February 2* 19^2* p. ^Japyx Statistical Yearbook 1959* B w e a u of Statistics Office of Prime Minister* «Japanese Government, ïokyo* pp. 10-11. 1$ o f increase in the aggregate national incon». The average annual rate of increase in real per capita national income in the 1872- 1938 period vas 3«15 per cent compared vith the average annual rate of U>25 per cent in real per capita national income for the nation in the same period. There are many important factors responsible for the economic grovth of Japan in the prewar period. Even though a fully detailed analysis of these factors is not within the scope of this study, it may be briefly stated in the following manner. Qerschenkron says: **Industrialisation always seemed the more promising the greater the backlog of technological innovations which the backward country could take over from the more advanced country. Borrowed technology, so much and so rightly stressed by Veblen, was one of the primary factors assuring a high speed of development in a backward country entering the stage of industrialization. The rapid industrialization in prewar Japan was achieved mainly by absorption of the Western industrial technology, and Qerschenkron'8 generalization holds true with respect to Japan. Fmrthermore, it should be pointed out that the Japanese people bad adaptability to the new economic conditions and the government helped the development of new industries in many ways. At the same time, the rapid expansion of foreign trade promoted economic growth, and

^"Economic Backwardness in Historical Perspective," Qerschenkron, Alexander, The Progress of Ifaderdeveloped Area, Hoselitz, B. P., ed., Chicago: Ônicago Ttaiversity Press, 1^^2, p. 6. 16 the rapid Increase in the national output stimulated the foreign trade eaqsaasion. Thus, there can be no doubt that the general level of economic well-being of the people was rising. As indicated above, the average annual rate of increase in industrial production for the 1901-1938 period was 8.92 per cent. Japan was the fourth largest exporter in the world in 1938. The annual rate of increase in the real gross national product between 1870 and 1938 was more than U per cent. However, despite the rapid increase in the aggregate national output only a small share of the increase went directly into raising the living standard of farmers, industrial workers, and other employees. According to H. K. Bennett's study on the relative consumption level of 31 countries during 193k-1938, Japan ranked ninth in the level of the general consumption measured by 16 non­ monetary indicators. These indicators included consumption of food, medical services, housing and clothing materials, education, recreation, transportation, and communication. Each country was rated on each indicator in terms of the ratio of its per capita consumption to that of the leading country. Then weights were given to these percentage-relatives, and each country's ranking with respect to its general consumption level was arrived at by computing the total percentage of all the indicators. Comparative positions in the weighted aggregative of percentages for major countries are shown in Table $, 17

Table S Relative Indicators of General Gonsuqption Level Major Countries, during 193L-1938 %ited States 100 Italy 36 Canada 8U Spain 33 Australia . 81 U.S.S.R. 31 IMted Kingdom 77 Brazil 29 Germany 61 Mexico 27 Prance 57 Philipinea 22 Argentina 50 Thailand 18 Cseehoslovakia 1*5 India 17 Japan 38 Korea 17 Cuba 37 China 11*

Source: "Disparities in Consun^tion Levels," Bennett, M. E., American Economic Review, Septeniber, 1951, pp. 632-61*9'

Even though Japan was well above its Asian neighbors, it was far below most of the leading industrial nations. The rise in wages of Japanese industrial workers lagged far behind the increase in the national output as indicated below: 191U 1938 Average real wages of industrial workersl 100 175 Industrial productioi^ Average annual rate of increase 7 .89# 100 668

^Lockwood, William W., op cit., p. iM*. ^Computed by the author from Table 2. 18 191k 1228 Real gross national product^ Average annual rate of increase 100 301 Per capita real gross national product^ Average annual rate of increase 3 . 2 W 100 222 One of the main reasons for the lag was the fact that the Japanese farm was the great reservoir of low wage labor for industry. In 1935 the total acreage of agricultural land in Japan was lU.7 million acres, of which 1*6 per cent was leased farm land cultivated by tenant farmers paying as much as half of the total crop as rent. It is estimated that in Japan a farmer should own at least four acres in order to make fair living in agriculture. But the average land per farm household in 1935 was 2.67 acres, and nearly 70 per cent of the total farm households owned less than this average. About 27 per cent did not own land at all as tenant farmers.^ Although 1*6 per cent of the total labor force was farmers in 1930 , only lU per cent,of the' total national income accrued from agriculture. Even in 191*0 the agricultural national income amounted to only 19 per cent of the aggregate national income while Ul per cent

Computed by the author from Table 1. ^A figure of 222 was obtained by dividing the 1938 relatives of real gross national product by the rate of increase in population from I91 I* to 1938, and then the average annual rate of increase was confuted. • 3Kaiseteu Nihon Keizai Tookei (Commentary of Economic Statistics of Japan}, compiled by fidtobsubashi Keizai Kenkyusho, Tokyo: Iwanami Shoten, 19^, p. 1*8. 19 of the total labor force in agricoltnre.^ The living standard of moat farmers remained very low. The living standard of industrial workers also remained low because the industrial wage scale did not rise as fast as the increase in the national output. The expanding industry bad to find markets abroad for surplus products irtiich could not be . sold domestically, and the low wages made Japanese industry competi­ tive with that of the advanced countries in the world market. There are a number of basic reasons to be cited for the low living standard in prewar Japan in spite of the rapid economic development; such as the rapid increase in population, the high rate of capital formation, the cost of wars and armament, unequal distri­ bution of wealth and income, and the worsening of the terms of trade. When Japan opened its door to the world, it was Immediately recognized that in order to unite the country and maintain its independence Japan had to be modernized industrially as well as militarily. At the same time all the technology for that purpose had to be imported from the Western countries. However, since there was not enough private capital available, the government itself had to handle the problem. Through tax reforms the government increased its revenue and invested a part of this revenue in various new industries, which were originally operated directly by the government and later sold, or given almost free to private corporations. Furthermore, by

^Ibid., p. UO, and Kokumin % o t o ^ Haknsho 1 ^ 0 (White Paper on National Income I960), Econrôdc Plami.ng Agency, Japanese Government, Tokyo, p. l62. 2 0 establishing a new monetary and banking system investment capital lias supplied to the armament industry as veil as to the export industries. It was thought by the government and leading business­ men that in order to promote capital formation and exports, vages of industrial workers and the living standard of farmers had to be k ^ t low. Free labor movements were suppressed by the government. Thus, the total outputs were not in balance with the domestic purchasing power of the people and surplus products which could not be sold domestically had to be exported. But the economy did not operate as smoothly as expected, and frequent depressions and panics afflicted Japan. In order to overcome these difficulties the govern­ ment provided private industry with financial aid through credit expansion by the Bank of Japan. At the same time, wars pulled the economy out of depressions through the increased demand for military goods and services which involved an increase in the government debt and inflation.^

Igome indicators of the expanding fiscal operation of the Japanese government in the prewar period are shown below:

1893-9U* 1913-lU® 1930^31^ 19kO-kl^ (millions of yen) Tax revenue 70 369 835 3,653 Sbqpenditure \ 85 57k 1,557 5,860 Public debt (year end) 23^ 2,592 6,15k 30,895 National income 1,380 k,556 ll,7kO 31,Ok3 (percentage) Wholesale price index 100 200 27k 507

^Lockwood, William V., op cit.» p. 2^1. ”Japan Statistical Yearbook l9$9> pp. 318, 326, 39k, and U06. 2 1

Capital formation can be examined only In recent decades since detailed official statistical data on Japan's national Income are available beginning with 1930. The amount of gross national capital formation^ In 1930 mas 10.5 per cent of the gross national product. This mas rather lorn because of the morld mlde depression. Bub as an annual average for the 193U-1936 period, the amount of gross national capital formation mas 19 per cent of the gross natlofaal product. The percentage mas as high as 26.8 per cent In 19kO.^ On the other hand, the amount of government eoq>endlture for goods and services mas 11.8 per cent of the gross national product In 1930. The ratio of government esqpendlture to the gross national product In the 193U-1938 period mas 15.S per cent, and It mas 2^.5 per cent In 19U0. In particular, the amount of the government military expenditure Increased from W*3 million yen In 1930 to 7>Uli| million yen In 19kO. It mas 3.2 per cent of the gross national product In 1930, But this percentage jumped to as high as 23.1; per cent In 1938 because of the Slno-Japanese Incident mhlch broke out In 1937, finally culminating In the Pacific War. In 19U0 the military expenditure took 18.8 per cent of the gross national product.^

^Tbe term **gross national capital formation* means the sum of gross private domestic Investment and government expenditure for Investment. ^Kokumin Shotoku Hakusho 1960, p. li»3. ^akedaj Takeo, ed., Qendal glhon SMhoshusl Talkei: Zalsei (Modern Japanese Capitalism Swiss; Public Hnance), fokyo: Koobundoo, 1958, pp. 51 and 55* 22 Acoordingüy, the ratio of personal consoraptlon expenditures to the gross national product decülned from 76.3 per cent in 1930 to 65.5 per cent in the 193U-1936 period. In 19U0 it was as low as U8.6 per cent. The real personal consumpMon per capita in 19U0 was 20.2 per cent lower than in 1930, as shown below:.1 Gross national Per capita* Gross national Capital Personal Personal Tear Product Formation Consumption Consumption (In million yen 193U-1936 prices) (In yen)

1930 Hi, 278 1 ,5 0 0 10,899 17 0 .6 193U-36 average 16,736 3,176 10,962 159.7

19U0 20,1*12 5,859 9,723 13 6 .2

*In 193U-1936 prices. VIhile the gross national capital formation in real terms increased by almost four times from 1930 to 19U0, the consumption level of the people in general did not rise, rather it declined by 19U0. Another reason for the failure of living standards of the Japanese people to rise as fast as the national output was the unequal distribution of income and wealth. According to income tax statistics, in 1939 the total taxable income amounted to U>65l million yen and there were l.U million taxpayers. Only one per cent of all the taxpayers in the top income bracket was responsible for

^Kokumin Shotoku Hakusho I960, pp. I78-I83. 23 as vamh as 20 per cent of all the taxable income.^ The chief cause of this inequality in the income distribution was the sise and concentration of property income. In the 193U-1936 period, personal rental income, personal interest incww, and corporate profits amounted to 27 per cent of the total national income while the entrepreneurial income was 31 per cent, and other labor incomes (chiefly wages and salaries) 30 per cent.^ The concentrated ownership of modern industry, banks, and trading firms by the great Zaibatsu families in prewar Japan was massive in scale. According to one estimate, the average income of the 31 families represented in the big combines such as Mitsui, Mitsubishi, Sumitomo, and Taszda was about 8 million yen in 1937 including corporate savings accruing to them.3 It was approximately equivalent to 2.3 million dollars in the 1937 Ü. S. dollar.^ Their total income was estimated at about 1.3 per cent of the national income. Ikitil the end of the Second World War the Japanese economy was "dominated by the Zaibatsu— a few powerful families, wedded for mutual protection and advantage with influential elements of Japanese society— who controlled the major part of the industry, mining, finance, and commerce of Japan, and in large part, the

^Kaisetsu MLhon Keizai Tookei, p. 10. ^Kokumin Shotoku Hakusho I960, pp. 166-7» 3Lockwood, William W., op. cit., p. 279. ^Conversion by the average exchange rate of 28.8 cents to one yen in 1937» 2 U livelihood of the people of Japan. It is also pointed out that the integration of these Zaibatsu families -with government was responsible for the course which led Japan ultimately to war and destruction.^ Even though Japan's rapid economic growth in the prewar period was promoted by the expansion of foreign trade, Japan expanded the volume of its exports largely at the cost of depreciating the value of the Japanese currency. The exchange value of the yen which was ÏÏ. S.

102 cents in I87U, dropped down to 2 3.U cents in 191*0 as shown below:^ 1871* 1895 1896-1919 1920-29 1932 1936 191*0 Value of yen in cents 102.0 5l.0 1*9.5 1*6.1* 28.1 2 6 .0 23.1* Excluding the trade with Korea, Formosa, and South Sakhalin, in 1929 Japan's value of exports was $991 million and that of imports, $1,022 million. In 1937 the value of exports was $911* million while that of imports was $1,089 million. According to the trade quantity index,^ however, the export volume in 1937 was 18 per cent greater than in 1929. On the other hand, the import volume in 1937 was 18 per cent lower than in 1929. Nevertheless, Japan's deficit in the

^Japan's Postwar Economy* p. 195. ^Loc. cit. ^Hatsui, Kiyoshi, Essay on Inter^tional Trade, Economic Series No. 20, Tokyo: The Science Council of Japan, 1959, p. 52. ^*The trade quantity index for prewar Japan was computed by dividing the trade value index by the price index of traded commodities. 25 merchandise trade in 1937 amounted ta $175 million, nearly six times as large as the deficit of $31 million in 1929.^ This means that the terms of trade in 1937 was clearly unfavorable to Japan compared with those of 1929. The net trade terms index for 1929 was lWt.2 with the 193U-1936 period as the base and it was 85.7 for 1937.^ In short, the Japanese economy grew rapidly in the prewar period. The average annual rate of economic growth for the period between 1872 and 1938 was U.25 per cent, which was greater than that of many industrial nations. The rapid economic growth was achieved . mainly throu^ the industrialization introduced from the Western countries and foreign trade played a significant role. By the late

1930*8 Japan became one of the industrial nations and the fourth largest exporter in the world. However, the national purposes for which Japan strove in the prewar period were predominantly military in character. In spite of rapid increase in the national output, the living standard of the Japanese people did not rise as fast as the national output and it was far below that of other industrial countries. The rapid increase in population, the h i ^ rate of capital formation, the cost of wars and armament, unequal distribution of wealth and income, and the

^Japan Statistical Yearbook 1959» p. 2l(3, and Kaisetsu Nihon Keizai Tookei, p. 162. ! ^Kaisetsu l ^ o n Keizai Tookei, p. 102. The net trade terms index was. computed by diyidinglERe export unit price index by the import pnit price index. 26 worsening of Hi& terms of International trade were chief reasons! for the loir living standard. The expanding Japanese industry had to find markets abroad for surplus products mhich could not be sold domesti­ cally, vhile it was tzydng to secure abroad an abundant supply of essenldal and cheap raw materials. At the same time, social stresses, frictions, and insecurity were mounting both within and outside Japan in the late thirties. Under these circumstances, unfortunately and recklessly, the mili­ tarist government concluded that the best way toward the solution of all the problems confronting Japan was territorial expansion by arms. The Pacific War was the final outcome of Japan's rapid economic growth in the prewar period.

Destruction during World War II and reconstruction in the early postwar period By the end of the war in 193^, approximately UO per cent of the built-up area of the 66 Japanese cities attacked by air was destroyed. According to an estimate of Japan' s war losses made by the Economic Planning Agency of the government, the total loss of the reproducible national wealth during the war was 65.3 billion yen expressed in the purchasing power of money as of August, 19U5* The amount of wealth Japan had at the end of the war is estimated to be 188.8 billion yen. Therefore, Japan lost about 25 per cent of the 27 total reproducible national wealth during the war. More specifically^ the losses of the classified wealth are as follows:^ Shipping ...... 80.6^ Facilities of the public Industrial machinery 3U*2 . , utility industry . . . 10-16^ House & buildings . . 2Û.6 Canals & harbors .... 7.5 Various vehicles .. . 21.9 Railroads...... 7.0 Merchandise stock.. . 21.6 About two-thirds of the prewar cotton textile industry, vdiich had a capacity of 12 million spindles, was scrapped by the Japanese war administrators, and during the war bombing caused a further loss of some 20 per cent in spinning capaci^ and lU per cent in weaving.^ The value of the reproducible national wealth in 1935 expressed in 1955 purchasing power of money was 2U.2 trillion yen compared with 20.3 trillion yen in 1955*^ That is, the reproducible national wealth declined by 3.9 trillion yen (10.8 billion dollars) during the 20-year period between 1935 and 1955» The real gross national product reached the prewar peak in 1939, as seen in Table 6. Since then the level of the real gross national product remained below the prewar peak until 195U. The real gross national product in 19U6 was less than half of the 1939 value. The ratio of personal consumption to the gross national product, which was 65.5 per cent in 193U-1936 period, dropped to as low as 35.6 per cent in 19UU while that of government consumption expenditure and gross national capital formation to the gross national product increased up to 6U>9 per cent in 19Wt, as shown in Table 7*

■ ^Kaisetsu Nihon Keizai Tookei, p. 19. ^japan's Postwar Economy, p. lit. ^Kaisetsu Nihon Keizai Tookei, p. 19. 28

Table 6 Current and Real Gross National Product Japan, 193k-19$0 Current gross Price Real gross national product National product Index - i n Ê i m ô ï ï Tear in billion yen 1950-100 in billion yen dollars

193l*-36(^) 16.73 0.1*1 1*,080.5 11.31 1939 33.08 0.62 5,335.1* 11*. 82 191*0 39.1*0 0 .8 0 1*,925.0 13.68 191*1 1|1*.90 0.89 5,01*1*.9 lU.Ol 191*2 5U.38 1.08 5,035.2 13.99 191*3 63.82 1.25 5,105.6 ll*.l8 191*1* 7U.50 1.53 1*,869.3 13.53 », l*7l*.00 18.16 2,610.1 7.25 191*7 1,308.70 1*5.97 2,81*6.9 7.91 191*8 2,666.10 79.81 3,31*0.6 9.28 191*9 3,375.20 96.36 3,502.7 9.73 1950 3,91*6.70 100.00 3,91*6.7 12.68

(a) Calendar year for 193l»-19W^. (b) Fiscal year from April to March for 19^6-19^0. Source: Kokumin Shotoku Hakusho I960, p. lUO, Keizai Yooran 1962, p. Ïi2, and computations. “

The ratio of the value of foreign trade to the gross national product also declined considerably during the war. The value of exports of goods and services amounted only to $ per cent of the gross national product in 19W+ compared with 2l*.3 per cent in the 193U-1936 period. In 191*6 it was only 1 per cent. The ratio of the value of imports to the gross national product was ^.1 per cent in 191*6 while it was 2l**3 per cent in the 193l*-1936 period. 29 Table 7 Percentage Distribution of Gross National Product by Expenditure, Japan, Selected Tears 193U-19U9 Expenditure 1 9 3 W 6 i9iq 19UU 191*6 191*7 191*8 191*9 Personal consumption expenditure 65.5 U6.0 35.6 70.3 69.9 65.3 67.0 Government purchases oi goods and services 15.5 30.1 37.2 11.6 7.8 10.6 11.7 Gross national capital formation 19.0 26.0 27.7 22.2 26.1* 28.2 2l*.6 Exports of goods and services 2U.3 13.7 5.3 1.0 2.1 3.1 6.1* Imports of goods and -2Ü.3 -15.0 —5.1 -7.2 -9.7 Total, gross national product 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Kokumin Shotoku Hakusho I960, p. lU3.

The real gross national product during the war remained below the peak level reached in 1939, but, according to the production index, the highest record of Japanese industrial production was recorded in 19Wi.: Production index 1955-100 193l*-36 191*1 191*3 191*1* 191*6 Industrial production 65.1 103.1* 101.6 103.5 1*1*.6 18.0 Iron and steel l*l*.l 76.2 90.1 81*.2 29.9 9.9 Machinery 3U.8 101.2 115.1 135.6 57.6 17.1* Textiles 113.3 83.1 1*3.0 22.9 8.8 ll*.6 Foodstuff 71*. 9 61*.9 1*7.8 39.1* 26.2 23.0 The peak in output of such products as ships, planes, ordnance, and munitions came in 19Wt. On the other hand, the industrial

^Kaisetsu Nihon Keizai Tookei, p. 60. 30 production of textiles and foodstuff as well as the agricultural production had been declining since the late thirties. In 19U6 the production index for all industry was onüy 18.0 compared with 103^5 in 19Wt. The rate of decline in production was far greater in such industries as textiles, iron and steel, machinery, and petroleum which depend on the import of raw materials. The Japanese economy which had been largely crippled by mid­ summer of 19U5 finally came to a standstill with the termination of the war. "Oriented wholly for war, facing a completely uncertain future, with no incentive or authority for reconversion to peace-time purposes, silent war plants, desolate of workers, remained only so much economic debris, part to be salvaged for repatriation, part to be slowly turned to meet reconstruction needs, and part to rot unused and unprotected from the elements."^ It was an economy in collapse. While there was an absolute shortage in consumer goods even with the release of the military hoards and government-held stock, the long suppressed demand for them by the people exploded. The inflationary pressure which had been built up during the war was fed by uncontrolled government expenditures and the great withdrawals of deposits in the weeks following August 15, 19h$» The government debt outstanding increased rapidly and most of this debt increase was financed by the Bank of Japan. The amount of Bank of Japan notes

in circulation increased by 12 billion yen, from 30 billion yen to U2 billion yen, in half a month immediately after the war. Thus, the

]-Japan*s Economy in War and Reconstruction, p. lp.7. 31 Japanese econony plunged into the first stage of the postwar hyper inflation. By the end of January, 191*6, the note issue by the Bank of Japan rose to $8.6 billion yen. Commodity prices were rising much faster and the wholesale price index showed an increase of more than double from August to January, as shown below:^ 19U5 ______19li6 August DecemberJanuary March beeember Note issued by the Bank of Japan inbillion yen 1*2.3 $$.1* $8.6 23.3 93.1* Wholesale price index 193U-1936-100 336.0 67U.8793.6 119$.1 221*9.0 Under these circumstances, in order to stop inflation, the government took the following emergency financial measures which were enforced and effective on February 16; 1. All Bank of Japan notes in circulation ("old yen") were to be deposited with banks and kept. frozen..

2. However, 300 yen could be withdrawn per family in "new yen" at the time of deposit, with 100 yen withdrawable per person a month thereafter. 3. Wages of only less than $00 yen could be paid out in new currency, and the remainder was to be paid by check and frozen. Because of these emergency measures the amount of Bank of Japan notes in circulation shrank from 61.8 billion yen on Februazy 18

Sendai Nihon Shihonshugi TaietdL, pp. 92-93> and Japan Statistical Yearbook 19$9, pp. *81* and 326. 2ïanaihara, Tadao, ed,, Gendai Nihon Shoosi (Short History of M o d e m Japan), Vol. 1, Economic History, Tokyo; Misuzu Shoboo, 19$!*, p. 11*7. 32 to 15<2 billion yen on March 12, which was the last day for depositing "old" Bank of Japan notes.^ However, banks were permitted to make loans to business enterprises in new currency accounts. Government expenditures in the General Account for the fiscal year 19h6 were five times as large as that of and the total government budget deficit was 65 billion yen.^ On the other hand, the food condition and the shortage of other commodities were not improving. Consequentüy, inflation was far from stopped. Under the twin pressures of rising living cost and increased unionization of labor, wages kept rising. The 500-yen wage limit in the currency reform was later increased to 700 yen, then to 1200 yen, and subsequently was lifted entirely. The Bank of Japan started increasing its note issue again and the Japanese economy entered the second stage of the postwar hyper inflation. The amount of Bank of Japan notes in circulation at the end of 191*6 was 93.1* billion yen, 70 per cent more than a year ago and 50 per cent more than the peak before the currency conversion. The wholesale price index rose ly nearly three times in 191*6. The currency conversion had no lasting effect.

^Oendai Nihon Shihonshugi Taikei, p. 100. ^Japan Statistical Yearbook 1559, p. 1*06. ^Japan's Economy in War and Reconstruction, p. l*5l* 33 The Occupation Policy Statement on Japan, made public on September 22, 19h$s declardd in part: "The policies of Japan have brought down upon tiie people great economic destruction and confronted them with the prospect of economic difficulty and suffering. The plight of Japan is the direct outcome of its own behavior, and the Allies will not undertake the burden of repairing the damage."^ The responsibility for reconstruction of the Japanese economy was to be left primarily in the hands of the Japanese government and Japanese people. However, this original position of the Occupation authorities of non-responsibility in the economic sphere was reversed. A directive of the Far Eastern Camission of Supreme Commander of Allied Powers (SCAP) issued on January 23, 19hlf declared that "the peaceful needs of the Japanese people should be defined as being substantially the standard of living prevailing in Japan during the period of 1930-1931$. Since the Japanese economy at the time was operating far below that level, the responsibility of helping Japan to reach the goal was assumed by the Occupation authorities, and the first positive step toward the reconstruction of the Japanese economy seemed to have started at this time. Along with the reversal of the basic economic policy toward Japan, the United States government decided to speed up the economic

^Ibid., p. 1(19. ^Iioc. cit. 3U reconstruction of Japan in the face of the increasing communist strezigth in the Far East.^ The American foreign aid to Japan in 19U7 was more than doubled from 193 million in 19^6 to UoU million; it was further increased in 19U8 and 19U9 as shown below:^ 19U6 19U7 19U8 19U9 19gO (In million dollars) Total Japanese import 306 921* 681* 909 97U Import throu^ U. S. aid 193 1*01* 1*61 939 361 Total Japanese export 103 171* 298 910 820 The first American foreign aid to Japan was granted under QARIQA. (Government and Relief in Occupied Areas). The aid was given in the form of food, fertilizer, petroleum, and medical supplies, but not in industrial raw materials. In August, I9l*7, OJEIRF (Occupied Japan Export-Import Revolving Fund) was established and the fund was used for Japan to import raw cotton from the United States. Further­ more, the United States Congress provided in 191*8 ERQA. (Economic Rehabilitation of Occupied Areas) funds, by which Japan could import industrial raw materials such as iron ore, coal, cotton, and also 5 producer-goods. The Japanese economy in the years following the end of the war was characterized by a complex of upward spiraUng interactiws of prices, wages, government expenditures, and credit expansi

Sendai Nihon Keizairon, p. 193 « ^Ibid., p. 1*0. ^Japan's Economy in War and Reconstruction, p. 1*98. 35 consumer goods. Thus, the Increase in their supply through the American foreign aid gave a momentum toward the reconstruction of the Japanese economy.

Table 8 Indicators of the Postwar Inflation Japan, 19U5-1950. Inflation indicator 19U5 191*6 191*7 191*8 191*9 1950 ( m billion yen) Gov't General Account expen­ diture in fiscal year 21.5 115.2 20 5 .8 1*62.0 699.1* 6 3 3 .3 Gov't bonds outstanding at fiscal year end'*' 11*3.1 203.3 25U.9 1*00.3 1*0 9 .8 358.9 Bank of Japan notes issued . at calendar year end 55.1* 93.1* 219.1 353.3 35 3 .3 1*22.1 loans and discounts to banks by the Bank of Japan 37.8 50.1* 32.3 51.9 88.6 U U . 5 Loans and discounts by banks at calendar year end 97.6 11*6.1* 168.2 381.3 679.1 991*. 7 (Index: 193l*-36»100) Wholesale price index in December 670 2250 831*0 18720 2I890 281*1*0 Gonsumer-goods price index fiscal year average - 1*880 12350 20750 21*320 23790 Wage index of production workers in manufacturing industry calendar year

average - ■ — 3290 9190 15710 18790

(a) Exclusive of the foreign currency bonds outstanding. Source: Japan Statistical Yearbook 1959, pp. 28$, 287, 318, 326, and 1*07; keiz^ tooran 196S, p. 1*2; Japan's Postwar Economy, p. 101.

On the other hand, the Japanese government managed to balance its budget at least in the General Account for the fiscal year 191*7 and 191*8 without any debt increase. However, due to the large 36 deficits in the Special Accounts the total government bonds outstand­ ing increased by Si.6 billion yen in 19U7 and lU^.U billion yen in

19U8j as seen in Table 8. Besides, the Beconstruction Finance Bank established by* the government officialüy in January, 19U7> issued bonds to obtain funds to supply to industries important for the economic reconstruction. The amount of the bond issue was 3 billion yen in 19U6, SS.9 billion yen in 19U7# and 109.1 billion yen in 19U8,^ Again the major portion of the bond issue by both the government and the Reconstruction Finance Bank was absorbed by the Bank of Japan. Consequently, the notes issued by the Bank of Japan increased rapidly from 93.U billion yen at the end of 19U6 to 219.1 billion yen at the end of 19U7> and to 35^.3 billion yen at the end of 19U8. At the same time, the wholesale price index rose by nearly four times in 19U7 and by 2.3 times in 19U8. Compared with the 193k-

1936 level the price index showed an increase by more than 200 times at the end of 19U9. The Japanese econony entered in 19k7 the third stage of the postwar hyper inflation, which was called "Redonstruc- tion Finance Bank inflation.” While the government recognized the necessity of stopping inflation, its economic policy was influenced by the Finance Minister's view at that time, namely, that "The advance of commodity prices is caused more by the decrease of commodities than by the

Sendai Nihon Shihonshu^ Taikei, p. 130. The Bank of Japan absorbed 69 per cent ot the total bond issues by the Reconstruction Finance Bank for the three years. 37 expansion of eurrencjr. Therefore, relief must be sought more in the Increase of goods than in curtailing the amount of currency, and for that reason an expansion pollqr becomes more necessary than retrenchment. Because of the intended expansion policy by the government for economic reconstruction, Japan experienced the worst inflation in its modem economic history in 191*7. However, the credit expansion for the purpose of investment in the basic industries as well as the increase of American foreign aid apparently encouraged industrial production. The Index of industrial production showed an increwe of 25.5 per cent in 191*7 and the increased supply of commodities slowed down the inflationary pressure in 191*8. As seen in Table 9, industrial production continued to expand along with the increase in American aid, expansion of foreign trade, and the bumper rice crop in Japan. However, in order to maintain the official price control system for commodities which was revised frequently during that time, the government was paying the price adjustment subsidy for products of basic industries such as steel and coal. Therefore, as the output of such products increased, the government had to increase the amount of subsidy, too. It amounted to 1*5.1 billion yen, 21 per cent of the total General Account eaqpenditure in 191*7, and

^Japan's Economy in War and Reconstruction, p. 1|50. 38 Table 9 Indices of Output by Industry, Japan Selected Tears, 193U-50 . (19^5-100) Industry 193U-36 3 M 191*7 3 M 191*9 3 ^ Industrial production ^5 .1 18.0 22.6 29.8 38.7 1*8.6 Mining 8 3 .6 1*1 .7 55.1 6 7 .6 77.3 8 1 .2 Iron & steel lilt.l 9.9 1 2 .9 21.7 3 7 .2 5 2 .2 Machinery 3U.8 17.1* 21.0 3 2 .3 1*0.2 1*1.6 Chemicals 1*6.3 12.1 16.8 22.0 3 0 .7 1*2.0 Petroleum & coal products 3 0 .1 6.6 7.9 12.1 1 5 .2 27.9 Textiles 11 3 .3 ll*.6 19.7 22.1* 2 9 .9 1*2.0 Foodstuff 7U.9 2 3 .0 3 0 .8 2 5 .5 3 8 .7 1*3.3

Source: Japan Statistical Yearbook 19^9, p. 22. increased to Ui^.l billion yen in 19U8, being 2k per cent of the 19U8 expenditure.^ Di order to finance the increasing expenditures Wie government raised its revenues by heavier taxes and by enforcing stricter tax collections. The total tax revenue of the national government including stamp revenues and government monopoly profits was 189 billion yen, W*6 billion yen, and 636 billi

19U7, to 2 2 .7 per cent in 191*8, and 23.3 per cent in 191*9.^

Sendai Nihon Shihonshugi Taikei, p. 125» ^Japan Statistical Yearbook 1959, pp. 39U and 1*07, 39 At the same time, the government was also paying a large amount of the export and import subsidies through the Foreign Trade Fund ‘ Special Account. During the early period of the Occupation, a U Japanese foreign trade was controlled by the SCAP, and was placed on a govemment-to-govemment basis with the SCAP acting for Japan. The United States Commercial Company was designated to act for the SCAP in sales of goods abroad, while the Japanese government established the Booeld Choo (Trade Board) to purchase all goods for export from Japemese producers and to sell imported goods to Japanese industries. The trade was operated on the basis of multiple exchange rates, utilizing two separate funds, a dollar account maintained by the SCAP and a yen account (the Foreign Trade Fund Special Account) in the hands of the Trade Board. The selling prices of imported commodities were kept artificially low in order to subsidize consumers and hold prices down while prices paid for export goods were always high enough to cover current costs of production. As a result, the Fund was constantly in deficit. The amount of export and import subsidies was estimated to have amounted to 36.9 billion yen in 191*7, and 12l*.U billion yen in 191*8 including the first three months of 191*9.^ The government had to increase the public debt to pay the subsidies, and thus it contributed to inflation.

^krendai Nihon Shihonshugi Taikei, p. 12$. ko It vas recognized by the government that the establishment of a proper single exchange rate would be the basis for the expansion of Japanese foreign trade on idilch the economic reconstruction of Japan would so much depend. But it was feared, at the same time, that the Japanese economy ml^t plunge Immediately into a drastic contraction because the establishment of the single exchange rate would drive high-cost producers of export goods out of business, and at the san» time, the abolishment of the Import subsidy would raise the prices of Imported commodities. Because of these conditions and the apparent inability of the Japanese government to cope with the situation, a "Program to Achieve Economic Stabilization to be Carried out by the Japanese Government" (the so-called "Nine-Point Economic Stabilization Program"), was proclaimed in December, 1?U8, by the United States government. The basic objective of this program was to achieve the economic inde­ pendence of Japan as soon as possible, and for this purpose Japan was urged to create conditions in which the early establishment of a single foreign exchange rate would be possible. The nine points of the program were in essence as follows:^ 1. The Tdiole government budget must be balanced. 2. The tax collection program must be strengthened. 3. The credit extension must be limited only to industries which can contribute to economic rehabilitation. U. An effective program to stabilize wages roust be set up.

^Ibid., pp. II46-IU8 . The price control system must be strengthened. 6. The system of foreign trade and foreign exchange controls must be improved and enforced more strictly.

7. The allocation and distribution of commodities must be improved so that exports could be expanded to the maximum. 8. The production of essential domestic raw materials and industrial products must be increased.

9 . The efficiency of the domestic foodstuff collection must be increased. ]h order for Japan to carry out the program^ especially in the field of fiscal and monetary policy, Mr. M. Dodge was sent to Japan in February, 19U9. He frankly pointed out that the Japanese economy was supported on a pair of stilts, American foreign aid and the price subsidy, and also that the economic recovery of Japan thus far by the inflationary policy was only a superficial one. Through the work of the Dodge Mission, Japan's postwar hyper inflation was finally brought to an end.^ First of all, it ended deficit financing. In the budget of the Japanese government for the 19U9 fiscal year, not cmly the revenues covered expenditures in all accounts, but also a surplus was provided for retirement of the government debt. Also, subsidies were eliminated immediately in some areas and in others were reduced gradually. A program for the complete

Sendai Nihon Shihonshugi Taikei, pp. l^Owl. ^Japan's Postwar Economy, pp. 87-8. U 2 elimination of all subsidies was prepared "to bring the Japanese eoanongr down off the stilts," as Hr. Dodge put it. In addition, the American Foreign Aid Counterpart Fund was established. As shipments of U. S. aid were received, the Japanese government was required to deposit in the Fund the yen equivalent of the cost of the goods. Part of the Fund was used for debt retire­ ment and part for investment in industrial capital formations. The inflationary credit expansion activities of the Reconstruction Finance Bank were halted. And lastly, an official single foreign exchange rate of 36O yen to $1 was established in April, 19U9. The effectiveness of the Dodge Mission's stabilizaticm program was seen in the decline of the consumer price index

(1955 -100 ) from a hi ^ of 8 I.I in Ifay, 191*9, to a low of 70.3 in

June, 1950 .^ The amount of Bank of Japan notes in circulation at the end of 191*9 remained almost equal to the amount of a year ago.^ Of the multiple exchange rates in existence before the setting of the single rate, on the export side about 80 per cent were lower than 36O yen to $1. The remaining 20 per cent of the export industries had to reduce costs to meet the new exchange rate requirements.^ Furthermore, in September, 191*9, Great Britain devalued its currency by 30 per cent which improved the competitive

^Japan Statistical Yearbook 1959, p. 328. ^Ibid., p. 285. ^Japan's Postwar Economy, p. 8?. Ii3 position of British exports in many markets as compared with Japanese e]q>orts. In Japan the people complained of tight money, stagnant output, rising unemployment, and an increase in small business failures. The economic growth rate in terms of real gross national product was 9.07 per cent in 19U7 and as high as 17.3k per cent in 19U8, but the economic growth in 19k9 recorded a much smaller rate of U.85 per cent because of the enforcement of the stabilization program. The per capita real gross national product increased by

5 .3 6 per cent in 19U7 and Ty lk.U9 per cent in 19U8, but the growth rate in 19U9 dropped to 2.$6 per cent,^ The ratio of the gross national capital formation to the gross national product was 22.2 per cent in 19U6. It rose to 28.2 per cent in 19l|8 and was 2k"6 per cent in 19U9. Compared with the rate of 1^.5 per cent in the 193k-1936 period, it has remained very hi^, as shown in Table 7. The postwar statistical evaluation and planning purposes, the Occupation authorities at first considered the years 1930>193k to be representative of Japan's peacetime econony, and the standard of living prevailing in this period as the one which the Japanese people should be helped to achieve as soon as possible. The target date for the achievement of this objective was originally 19^0, but it was

^Kokumln Shotoku Halcusho I960, p. 182. lOi adyanoed to 19^2 later. On the other hand, the Japanese government adopted the period 193U-1936 as the best representative of the peace­ time period of prewar Japan mainly because this period was the last period of Japan's prewar peacetime years. In 19h9 the real gross national pi'oduct already reached 86 per cent of the 193^-1936 period. However, the per capita real gross national product in 19U9 was 72 per cent and the industrial production was only ^9.U per cent of that prewar level. Furthermore, according to the foreign trade volume index, exports in 19U9 were as low as

15.3 per cent of the 193U-1936 level idiile imports were 2 8 .1 per cent of that level.^

Economic growth in the 1950's The enforcement of the economic stabilization program and the so-called "Dodge budget" for 19h9 along with the establishment of the official single foreign exchange rate of 360 yen to $1 finally stopped Japan's postwar hyper inflation. The government budget for 1950 was also determined under the direction of Mr. Dodge. Economic activity was being normalized with gradual removal of government controls. The consumer price index (1955*100) dropped from a hi^i of 61.1 in May, 19U9, to a low of 70.3 in June, 1950. There were problems of stagnant output and rising unemployment. Then, in June, 1950, the outbreak of hostilities in Korea brought a halt to the stabilization program and led to an export boom

^Kaisetsu Nihon Keizai Tookei, p. 102. Ii5 and expansion of industrial production with subsequent shortages of materials and renewed inflation. The United States began its "Special Procurement" program in Japan of supplies and equipment for United Nations forces in Korea with the result that Japanese exports Increased sharply. Industrial production exceeded the 1932^-1936 level for the first time in October, 1950.^

Table 10 Current and Real Gross National. Product, and Growth Rate, Japan, 193U-1936, 19U9-1960 Fis­ Current gross Price Growth cal National product ■ Index Real gross national product Rate ii Year in billion yen 1950-100 Rilllon yen billion dollars Per cei 193U-•36^ 16.7 0.1*1 1*,073.2 H . 3 1 191*9 3,375.2 96.36 3,502.7 9.73 3.9 1950 3,91*6.7 100.0 3,91*6.7 1 0 .9 6 12.2 1951 5,1*1*1*.2 121.1* 1*,!*81*.5 12.1*6 1 3 .5 1952 6,110.0 12U.3 1*,922.0 13.67 1 0 .5 1953 7,081*. 8 1 3 3 .1 5,3 3 2 .9 li*.79 6.7 1951* 7,1*65.7 1 3 5 .3 5,591.8 1 5 .5 3 3 .3 1955 8 ,2 3 5 .5 135.3 6,0 7 7 .9 16.88 1 0 .3 1956 9,292.9 11 *0 .5 6,6ll*.2 18.37 9 .0 1957 10,11*9.0 11*2.1* 7,127.7 19.80 7.9 1958 10,391*.7 139.1 7,1*72.6 20.76 3 .2 1959 1 2 ,5 7 2 .5 11*1.1* 8,091.1* 21*. 70 1 7 .9 I960 11*,661*.9 11 *5 .0 10 ,113.7 20.09 1 3 .2

(a)For calendar year. Source : Keizai Yooran 1962, pp. 27, 28, and U2,

The real gross national product increased beyond the 193U- 1936 level in 19^1. Its growth rate was 12.2 per cent in 1990 and

^Japan's Postwar Economy, p. 09. l|6 13.5 per cent in 19^1 es shown In Table 10. In terms of the real gross national product, the 19U6-19^1 period was the reconstruction stage of the Japanese econoqy, and the average annual growth rate for five years 19U7-19^1 was U . S per cent. The Korean war began to subside after April, 19$1, and following the conclusion of the cease-fire agreement, the world econoiqy turned to recession. The value of Japanese exports in 1952 remained below that of 1951. Under these circumstances, the govern­ ment tried to expand the domestic market for both investment and consumption by a fiscal and monetary poli

^Ibid., p. 92. h i As a result of such, measures taken by the government, prices of Japanese exports were lowered. At the same time the world economic condition was improving. Consequently, the value of Japanese exports in 19$h increased by 28 per cent, while that of imports remained below that of 19$3* The real gross national product recorded an increase of 3.3 per cent in 195U. For the next three years, 1955-19^7» the rate of economic growth remained at an average of more than 8 per cent thanks to such factors as the government's effective economic policy, the expansion of foreign trade, h i ^ level of investment, and expansion of consumption. These factors will be analyzed in the following chapter. In 1927, the imports increased again more rapidly than the exports to meet the rapid increase in the domestic output. Also, the Suez incident was partly responsible for the rapid increase in the imports. Subsequently, the foreign exchange reserves dropped down to $52U.6 million at the end of 1927 from $9Ul.U million of the previous year. 1 The goveminent switched its economic policy from the e^^ansive to the restrictive in late 1927, causing a drop in the economic growth rate in 1928 from 7.9 per cent in 1927 to 3.2 per cent. However, after only one year of slump and a lower rate of economic growth in 1928, Japan achieved an economic growth of as h i ^ as 18 per cent in 1929, the largest rate ever achieved in the

^Japan Statistical Yearbook 1929, p. 260. U 8 economic history of modem Japan. Thus, the average annual rate of economic growth for the ten-year period of the 19^0's was per cent. The per capita real gross national product in 1959 was 61.5 per cent hi^er than the 193ii-1936 level, and the average annual rate of increase in the 1950's was 8.^8 per cent. Expressed in 1950 prices, the per capita real gross national product rose to 96,020 yen in 1959 from 1*7,Wt5 yen in 1950, as shown in Table 11.

Table U Population, Real per Capita Gross National Product in 1950 Prices, and its Growth Rate, Japan 193U-1936 and 191*9-1960 Fiscal Population Real (HIP per Capita Growth rate Year in thousands in yen in dollars in per cent 193l*-3^^) 68,61*7 59,1*1*2 165.1 _ 191*9 81,708 1*2,869 119.1 12.56 1950 83,167 1*7,1*1*5 131.8 10.75 1951 81*,1*75 53,087 11*7.5 11.87 1952 85,750 57,399 159.1* 8.12 1953 86,983 61,195 170.0 6.61 1951* 88,220 63,385 176.1 3.58 1955 89,233 68,113 189.2 7.1*6 1956 90,122 73,392 203.9 7.75 1957 90,887 78,1*21* 217.8 6.86 1958 91,725 81,1*70 226.3 3.88 1959 92,592 96,028 266.7 17.87 I960 93,383 108,303 300.8 12.78

(a)por calendar year. Source: Table 9, and Kokumin Shotoku Hakusho I960, p. 182. U 9 Table 12 Total and Per Capita National Income Expressed in U. S. . Dollar, and Population, Selected Countries, in 19^9 Total national National income Income in per capita Population Country Billion Dollars in dollars in millions

United States 396.6 2,232 177.7 United Kingd(HB 53.0 1,020 52.0 West Germany U5.9 869 52.6 France 39.5 875 U5.1 Japan 27.9 301 92.7 Canada 27.5 1,578 17.U India 26.1 66 397.5 Italy 22.U U57 H9.1 Brazil 19.2 299 6U.2 Australia 12.0 1,196 10.1 Sweden 10.3 1,381 7.5 Ifexico 8.7 263 33.2 Belgium 6.6 9U0 9.1 Holland 8.5 7U5 11.3 Switzerland 6.6 1,29U 5.2

Source: Ko^min Shotoiro Haku^o ^ 6 0 , p. 209, adopted from Tntemaiional financial Statistics, July, 1961, international Monetary Pund. '

Japan’s national income of $27.9 billion in 19^9 was the fifth largest in the world, as shown in Table 12. In terms of the per capita national income, however, Japan ranked 23rd with $301, far below the $2,232 of the United States and the figures for other advanced industrial nations. As for the economic growth rate, Japan outranks any other leading industrial nation. The economic growth rates of the 5 0 advanced industrial countries in terms of the real gross national product for the second half of Ihe 1950's are given below:^ West United United Japan Germany Ita]y Canada France States Kingdow

9.82^ 6.6% 5.6256 U.2% 1*.0% 3.1*1|J6 2.2% In terms of per capita real gross national product, the average annual growth rate in the 1950's was 8.5U per cent for Japan, 6.71 per centfor Vest Germany,and 2.19 per cent for the Ihiited States.2 In Japan the Dconoraic Planning Agency of the government makes a forecast of the economic trend for each year in advance of the I parliamentary discussion of the government budget. The agency under­ estimated the growth rate of the ecanagy every year in the 1950's as shown below:^ 1952 1953 195U 1955 1956 1957 1958 1959 I960 Forecast {%) 8.1 5.U 0.5 U.O U.2 6.5 3.0 5.5 6.5 Actual (56) 9.76 8.1$ 5.05 8.69 8.82 7.78 U.8U 18.98 13.75

Summary The growth rate of Japanese econony was high even in the prewar period, as ccxnpared with that of many other industrial

^Ibid., p. 212. g Ccxnputed by the compound interest computation method from the data, Keizai Yooran 19^, p. 273. %akayama, Ichiro, ed., Niiion Keizai no Seiohoo (Japan's Econwnic Growth), Tokyo: Tokyo University Press, i960, p. % . 5 1 nations in the sane period. Since the tine of establishment of Japan's modem government in 1868^ Japan emerged from the stage of an agricultural econongr to become one of the industrial nations in the world within a relatively short period of time. Industrial production increased at an average annual rate of 8.92 per cent in the period 1901-1938. Japan's rapid economic growth and expansion of industrial production was achieved mostly through industriali­ zation introduced from the Western countries, and international trade played an Important role. 1938, Japan's share in the world ejqports rose to ^.3 per cent and Japan was the fourth largest exporter in the world in that year. However, the living standard of the Japanese people in general did not rise as fast as the national output. The rapid increase in population, the high rate of capital formation, unequal distribution of wealth and income, and the worsening of the terms of international trade were chief reasons for the low living standard. The expanding Japanese industly had to find markets abroad for surplus products which could not be sold domestically. Frequent depressions and panics afflicted Japan and war pulled the economy out of depressions through the increased demand for militaiy goods and services which involved an increase in the government debt and inflation. The Pacific War was the final outcome of Japan's rapid economic growth in the prewar period. World War II left the Japanese econony in a state of collapse, but Japan underwent a very rapid economic recovery and growth in the postwar period. The real gross national product 52 reached the 193L-1936 level in 19$1 and the average annual growth rate during the 19^7-1951 period was 11.5 per cent. Japan's economic activity had dropped to such an extremely low level at the end of the war, that the swing toward recoveiy may be construed as a natural outcœie of the renewal of livelier economic activity. The real gross national product in 19U6 was 61|. per cent of the 193U-1936 level and less than 50 per cent of the prewar peak in 1939. The industrial production in 1 9 W was less than one-third of that of the 193U-

1936 period. It is a remarkable fact that even after the real gross national product regained its prewar level, it increased at an average annual rate of 9.1 per cent during the 1952-1960 period.

]h the 1 9 5 0 's the annual growth rate was as h i ^ as 9.U5 per cent, which was higher than that of any other leading industrial nation in the world. Economists have cited various reasons for Japan's high rate of economic growth in the postwar period. The rapid economic growth of Japan was evident also in the prewar period, and there are some factors tdiich account for rapid economic growth, both, in the prewar and in the postwar periods. They are adoption of advanced Westem technology, high rate of capital formation, abundant supply of hi^-quaiity labor, and rapid expansion of foreign trade. On the other hand, there are several special factors responsible for the rapid economic growth in the postwar period only. They are the break-up of the Zaibatsu, land reform, expansion of 5 3 labor unions, sharp decrease in military expenditure, the U. S. economic aid and special procurement programs, large-scale technological innovations, and great expansion of domestic consumption* CHAPTER THREE

ANAEÏSIS OF FACTORS RELATED TO JAPAN'S RAPID ECONOMIC. GROWTH IN THE 19^0 ' S

Institutional changes due to Japan's defeat in World War ll ” While no one factor can be singled out, it is possible to isolate a number of factors and say, with some certainty, that these factors in combination were especially responsible for Japan's rapid economic growth in the 19^0*s. Of the large number of measures undertaken by the Occupation authorities for the democratization and reconstruction of the Japanese econony, the most important were various institutional changes tdiioh were put into effect shortly after the war. These institutional changes, such as the break-up of the Zaibatsu, the agricultural land reform, and encouragement of unionization of labor, had formed the basis on which the Japanese econony was revitalized. They made feasible the rapid economic growth evident in the postwar period. 1. Break«"Up of the Zaibatsu As the first step of democratization of the Japanese econony, the Occupation authorities ordered the Japanese government In October, 191*5, to eliminate monopolistic enterprises by breaking up the four

5U principal Zaibatsu (Mitsui, Mitsubishi, Sumitomo, and lasuda) and eleven others. General MacArthur, in one of his messages to the Japanese people, explained the importance of the measure in the following way: Economically, allied policy has required the breaking up of that system which in the past permitted the major part of the commerce and industry and natural resources of your country to be owned and controlled by a minority of feudal families and exploited for their exclusive benefit. The world has probably never seen a counterpart to so abnormal an economic system. It permitted eaqploitatlon of the many for the sole benefit of the few. The integration of these few with government was complete and their influence upon government policies Inordinate, and set the course which ultimately led to war and destruction.

By September, 19h7t a, total of 83 companies had been designated as monopolistic holding companies and their stock holdings were transferred to the Holding Company Liquidation Commission established in August, 1946. The Mitsui Bussan and Mitsubishi Shooji, the two largest Zaibatsu trading companies, which accounted for 70 per cent of Japan's prewar foreign trade, were dissolved. Out of the two more than 200 new small trading firms were formed. A total of $6 members of the Zaibatsu families and 2,210 other executives were purged from their companies.^ Thus, these big holding companies were no longer able to control their former subsidiaries. Until the Japanese government declared the completion of the Zaibatsu break-up in 1931, the Holding Company Liquidation Commission sold 166 million shares of stock owned previously by the

^Japan's Postwar Econony, p. 193. ^Oendai Nihon Keizairon, pp. 176-178. 56 holding companies and the Zaibatsu famiU.es to emplc^es, investors, and the general public.^ Furthermore, apart from the holding companies, certain operating companies were found to possess excessive concentrations of economic power, and the Law for Elimination of Excessive Concentration of Economic Power was passed in the Japanese Diet in December, 19U7* Under this law eleven large companies were ordered to divide into independent companies and seven were ordered to dispose of certain of their properties.^ Such transformation in the economic structure of Japan created keen competitions among many companies in various fields of commerce and industxy. Also it created new aggressive entre- prenurers. As far back as 1930, the capitalist executives of the large Zaibatsu companies, content to rest on the maturity of their economic power and assets, tended toward conservatism.^ The postwar period saw the emergence of new, more venturesome manager-executives, who led Japanese industries into taking full advantage of techno­ logical innovations, and the resultant high-rated equipment invest­ ment subsequently contributed to rapid economic growth. 2. Agricultural land reform Japan’s prewar agriculture was characterized by too many poor farmers and a concentration of ownership in a few large landowners.

Japan's Postwar Econony, p. 196. ^Ibid., p. 197. ^akahashi, Kamekichi, "The Basic Factors of our High-Degree Economic Growth," Chuoo Kooron, August, 1961, Tokyo; Choo-Kooron-Sha. $7 Of the total farm hoaseholds in 1930, 27 per cent did not own azy land, and as tenants they were paying as much as half the crop for rent. Also, per cent of the total farm households rented land to cultivate in addition to their own. About 1*6 per cent of the total cultivated land area was tenant-operated. Furthermore, even though 1*8.^ per cent of the total labor force was in agriculture in 1930, the national income accruing from agriculture was only 11* per cent of the total national income. The low income of the farmers meant a low consumption rate of goods. At the same time, the farm was the great reservoir of low-wage labor for industry, which kept the income of industrial workers at a low level, too. The domestic market could not absorb the rapid increase in industrial production of goods. Consequently, the efforts to find markets abroad led Japan to the fatal war. 3h December, 191*5, the Occupation authorities ordered the Japanese government to reform the agricultural land system as a part of the economic democratization of Japan. The main features of the land reform program started in February, 191*6, were to transfer land ownership to farmers actually cultivating the land and to improve the conditions of farm tenancy practices for those who would continue to cultivate as tenants.^ Under the program the government purchased land for resale to tenant farmers. Since the terms were so favorable to tenants, the program met with their enthusiastic response, and the land

^Japan's Postwar Economy, p. 31 < 58 ownership of 7U per cent of the former tenant-operated land was transferred to them. 1 As a result of the land reform, the ratio of purely tenant farm households declined to U per cent of the total farm households in 1955, and to only 2.9 per cent in I960. However, 21.6 per cent of the total farm households still rented land to 2 cultivate besides their own in I960. With the improvement in farm tenancy practices, rent is now to be paid in money, and the rent for a rice field, for example, is now equivalent to only 6 or 7 per cent of the total harvest value at the official price.? Because of the land reform and improvements in chemical fertilizers and agricultural technology, agricultural production increased in I960 to a level 37 per cent hi^er than that of the prewar period, according to the agricultural production index as shown below:^ 19it5 1950 1955 I960 Agricultural Production Index (1933-35=100) 60 99 128 137 Moreover, high prices for domestic agricultural products have been maintained by the government. For instance, the purchase

^ICawamura, Kinji, Sengo no Nihon Keizai (Postwar Japanese Econony),, Tolyo: Shunjusha, I9 6 0 , p. Y7. ~ ^Keizai Yooran 1962, p. 162. ^Gendal Nihon Keizairon, p. 222. ^Keizai Yooran 1962, p. 15U* 59 price of rice by the government is almost twice as h i ^ as the price -- 1 paid for rice imported from southeast Asian countries. Because of the land reform which freed Japanese farmers from high rentals, the government supported high prices for their products, and the increased production, the financial position of farmers was greatly improved compared with the conditions in the prewar period. Thus, the importance of farm households as markets was also greatly- enhanced both for consumer goods and for various mechanized producer goods. The expansion of these domestic markets is one of the important factors responsible for the rapid economic growth in the 1950's, and postwar changes in the domestic markets will be analyzed in more detail later. 3. Encouragement of the unionization of labor One of the main conditions favoring Japan's rapid export expansion in the prewar period was low wages for labor. The wages were kept low not only because of the existence of the large labor supply but also largely because the free labor movement was suppressed by the government.

1 9 3 6 , when the peak of the prewar union movement was reached, the total number of unionized workers was U20,000 in 973 unions.^ There was hardly any special labor legislation which could be called modem, permitting labor the right of free organization

^Kawamura, Kinji, op. cit., p. 8 3 .

^Gendai Nihon Shooshi, Vol. 3j P» 8 I. 60 and collective bargaining. Starting in 193& the Industrial Patriotic Society was established all over Japan by government pressure to meet the demand for labor for war production. Local societies were united later into a national organization. Consequently, the number of labor unions declined in 19U0 to only h9 with a membership of The existence of Japan’s prewar labor unions was ended in 19UU.^ In October, 19U5, the Occupation authorities issued instruc­ tions to the Japanese government that the unionization of labor should be encouraged to democratize the Japanese economy. The Trade lW.cn Law, passed by the Diet in December, 19U5» guaranteed to workers in private industry the basic right to organize, bargain collectively, and strike. The response of the workers to this policy was instantaneous because they were long suppressed and in addition their living conditions were low at that time. The unions were enabled to obtain significant economic gains for Japanese workers through the establishment of a Labor Ministry and a series of favorable labor laws, such as the Trade Union Law, the Labor Relations Adjustment Law of September, 19U6, the Labor Standard Law of April, 19Ù7, and the Employment Security Law and the IMemployment Insurance Law of November, 19U7. Because of the government’s labor policy, at the end of

June, i960 , there were l(l,^6l labor unions with a total membership

of 7 .6 million workers, that is, 3U*7 per cent of the total

^Loc.*cit. 61 employed labor force in I960 was unionized.^ Consequently, wages for labor have been greatly increased, working conditions have been much improved, and the status of labor has been raised. The importance of workers as markets for consumer goods has been enhanced, contributing to the rapid economic growth in the postwar period. k* Cessation of Japan's colonial outlay The fact that Japan lost the former territories of Formosa, Korea, and Manchuria was not detrimental to economic growth of Japan. Since Japan's possession of these territories was more for a military purpose than for economic gains. Japan's outlay in these areas was a burden on the Japanese economy. Since the end of the war Japan has not made any outlay of that nature. At the same time, industrial equipment investments have been concentrated within Japan proper. Consequently, it has increased the employment of Japanese workers and contributed to the rapid economic growth of postwar Japan. Absence of heavy military expenditure

In the I93U-I936 period, the amount of Japan's average annual military expenditure was 1,018 million yen, Tdiich was 6.1 per cent of the gross national product and U5.8 per cent of the govern­ ment expenditures.^ Though the new Constitution of Japan renounced

^Keizai Yooran 1962, p. 236. ^Gendai Nihon Shihonshugi Taikei, p. $1, 62 war, Japan has been building military forces for national defense since 19^2. But the amount of the government budget for national defense in 19^2 was lOU billion yen which represented only 1.7 per cent of the gross national product. In 19^9 the defense budget increased to 1^7 billion yen but its ratio to the gross national product declined to 1.2^ per cent.^ The ratios of military expenditures to the national income for selected countries are shown below: 2 United United West . Tear Japan States Kingdom France Germany Itajy

19$$ 2.0f6 12,3% 10,0% 8,k% h-h% h*3% 19$7 1.8 12.0 8.8 9.3 U .6. k*7 19S9 1>$ n . U 8 .2 - 5.2 U.5 The ratio of Japan's military expenditure to national income in the postwar period is much lower than in the prewar period and also than that of other advanced countries. The absence of the heavy burden of military expenditures is partly responsible for the rapid economic growth of postwar Japan, because the smaller appropriations for military expenditure left a greater percentage of the national output available for other consumption purposes and for capital investments which are more productive for economic growth.

Ü. S. economic aid to Japan and Special Procurement The Japanese economy in the years immediately following the war experienced a great shortage of raw materials and consumer goods.

^Japan Statistical Yearbook 1959, pp. ii08-U09. ^Keizai Yooran 1962, p. 275. 63 But the Increase In their supply through American economic aid gave a momentum toward the reccmstruction of the Japanese econony. The total amount of American economic aid to Japan amounted to $2,116 million

by 1 9 5 2 , as indicated in Table 13.

Table 13 U. S. Economic Aid to Japan and its Ratio to Japan’s Total Imports, 19U6-19I>2 n. s. economic aid Ratio of aid to Year in million dollars Total imports

19L6(^) 193 6 3.]^ 19U7 hOk 77.1 19ii8 U6l 6 7. U 19U9 535 59.1 1 9 5 0 3 6 1 37.1 1 9 5 1 157 7 .6 1952 5 0 .2 Total 2 ,1 1 6 100.0

(^)lncluding the last four months of 19U5. Source: Gendai Nihon Keizairon, p. UO.

Japan’s capacity to balance its international payments by increasing its exports of goods and services was shattered ty the wartime destruction of its industry and shipping. Consequently, imports of consumer goods and raw materials through American economic aid amounted to more than half of Japan’s total imports in the years 19U6-19l|.9. However, the outbreak of the Korean War

in mid-1 9 5 0 larought an export boom to Japan. Since then the “special procurement," that is, the purchase from Japan of supplies, 6U equipment^ services, and amusements for U. S. and U. N. troops in Korea, Japan, and the Ryukyus, replaced the American economic aid to Japan.

Table lU Japan's Foreign Exchange Receipt Through Special Procurement and its Ratio to Total Foreign Exchange Receipts, 19^0-1959 Ratio to total Fiscal Receipt in millions Foreign exchange receipts Tear of dollars in per cent 1950 165 12.6 1951 671 27.9 . 1952 801 38.0 1953 761 35.2 195U 590 2U.9 1955 570 20,1 1956 587 17.6 1957 529 IU.6 1958 1*89 13.7 1959 1*61* 11.1 Total 5,627

Source: Keizai Yooran 1962, p. 203.

As shown in Table U*, Japan's foreign exchange receipts through the special procurement in the 1950's amounted to as much as 5,627 ml11ion dollars. This injection of dollars helped Japan to balance its international payments and helped to rehabilitate and further to develop its industry. Even though the ratio of Japan's foreign exchange earned ty way of the Special Procurement to the total foreign exchange receipts has been getting smaller since the cease-fire of the Korean War, the sum of American economic aid to Japan and the Special Procurement ezqpenditures whicdi amounted to $7,71*3 million was one of the major factors responsible for Japan*s rapid economic growth in the 1950's.

Expansion of the world economor The decade of the 1950 ' s was one of expanding world economy characterized by a h i ^ and growing level of world trade with a tendency toward liberalization of trade policies in many countries. As world output grew and world trade expanded, it was not unnatural that Japan, with its active participation in the international economy, should sâiare its benefits. Japan’s rapid expansion of foreign trade did not have to come at anyone else’s expense. While the volume of world exports rose by only 1.1* per cent between 1938 and 191*8, it increased by 85 per cent between 1950 and 1959*^ The world’s industrial production increased by 1*3 per cent between 1938 and 191*8; it increased by 79 per cent between 1950 and 1959.^ The expansion of international trade and the world economy in the 1950’s was, to a large extent, due to technological innovations brought about by extensive wartime and postwar research and develop­ ment in science and technology. Japan was able to achieve rapid economic growth in the 1950’s, largely by taking full advantages of the innovations. The effect of the innovations bn the Japanese economy will be anauLyzed later in this chapter.

^Keizai Yooran 1962, p. 290. ^Ibid., p. 280. 66 On the other hand, it should be pointed out that the decline in world prices of raw materials relative to prices of manufactured goods was an important factor that helped Japan to achieve rapid economic growth. The price decline gave Japan a favorable balance in the volume of manufactured goods to be exported in exchange for raw materials, and the price level in Japan remained relatively stable in the 19^0»s.

Fisc^ and monetary policies of tke Japanese government Japan’s rapid economic growth in the 19^0’s was achieved, not automatically, but in part by effective use of fiscal and monetary measures by the Japanese government. One of the major characteristics of the fiscal and monetary policies adopted by the government in the prewar period was deficit financing and inflation. After the war, Japan experienced hyper inflation until 191*9. Prices rose by more than 300 times over the prewar level. Finally, inflation was stopped by the economic stabilization program enforced by the Occupation authorities. The outbreak of the Korean War in June, 19^0, brou^t a halt to the stabilization program and led to renewed inflation with an export boom. In the decade of the 1950's, however, Japan achieved its rapid economic growth with relative price stability. Table 15 shows the Japanese wholesale price index rising by almost 1*0 per cent between 1950 and 195l> but for the ten-year period from 1951 to I960, the index rose by only 1* per cent. 67 Table 1 $ Wholesale Price Didex, Selected Countries 1950-1960 (1953-100) Year Canada France West Germany Italy Japan United States

1950 96 78 85 93 70 9h 1951 109 100 100 106 97 101* 1952 102 105 103 100 100 101 1953 100 100 100 100 100 100 195U 98 98 98 99 99 100 1955 99 98 101 100 98 101 1956 102 102 103 102 102 101* 1957 103 108 105 103 105 107 1958 103 121 106 101 98 108 1959 101* 1 26 105 98 99 108 I960 105 132 106 99 101 109

Source : Keizai Yooran 1962, p. 302.

In order to analyze basic measures taken in the 1950' s by Japan’s fiscal and monetary authorities, the period after the Korean War will be divided into six stages. 1. Anti-recession measures, 1952-1953 When the Korean War boom was over, Japanese export industries and trading firms were particularly hard hit. Special financial aids were given to them under the direction of the government. But the Japanese econoiry could not avoid the post-Korean War recession. The value of Japanese exports declined from 1,355 million dollars in 1951 to 1,237 million dollars in 1952 because of the worldwide recession. However, Japan's foreign exchange receipts throu^ the special procurement by the United States increased from 671 million 68 dollars in 1951 to 801 million dollars in 1952. Also, the export boon in 1950 and 1951 increased Japan's foreign exchange reserves from 1*91 million dollars in May, 1951, to 1,182 million dollars in September, 1952.^ Since the conditions of foreign markets precluded azy expansion of exports, the government tried to encourage domestic consumption and capital investment by liberal credit polocies. The government raised its own expenditures to 81*7 billion yen in 1952, an increase of 17 per cent over 1951, and lowered the rates for p personal income and other taxes.^ The estimated 100 billion yen so released entered the domestic market and so stimulated consumption and production that the actual tax revenues of the government did not fall off, the offset in tax rates being compensated by the increase in the national income.^ The government's rice purchase price was raised in 1952. Also the amount of rice purchased by the government in 1952 increased to 1*>2 million tons from 3.8 million tons of the previous year.^ The pay to government employees was also raised. Government

^engo Keizaishi; Booeid., Kofcusai Shushi-hen (Postwar Economic History; Foreign Trade and. ïntemational Balance of Payments), compiled by the Economic Planning Agency of the Japanese Government, Tol^o: 1962, pp. 11*6 and 185. ^Japan Statistical Yearbook 1959. p. 1*08. ^Gendai Nihon Shihonshugi Taibel, pp. 201-202. klapan Statistical Yearbook 1959, p. 86. 69 expenditure for public works was increased from 78.7 billion yen in 1951 to 105.6 billion yen in 1952, that is, by 3U per cent.^ At the same time, banks were encouraged to make loans to industries at lowered interest rates; the amount of outstanding loans and discounts increased by UO per cent, from 1,518 billion yen at the end of 1951 to 2,128 billion yen at the end of 1952.^ Since most industries were operating much below the level of their full capacity in early 1952, the government ' s main emphasis for the anti-recession measures was placed on the expansion of dwestic consumption. As a result, the ratio of personal and government consumption to the gross national product in 1952 rose to 71.7 per cent compared with 65.7 per cent in 1951.^ By early 1953, a domestic consumption boom started to develop as was esqpected by the government. Thus, the post-Korean War recession in Japan was after all, nothing more than a slowdown in the rate of economic growth, from 13.5 per cent in 1951 to 10.5 per cent in 1952. In 1953, the government’s emphasis was placed on the encouragement of capital formation. In order for Japanese industry to compete with industries of other nations and to increase its exports, it had to be modernized, and the modernization required large capital investment.

^Keizai Yooran 1962, p. 69. ^Ibid., p. 72. 3Kbkumin Shotoku Hakusho I960, p. 177. 70

The budget of the government•s expenditures for 19$3 was 1,1L6 billion yen, 31 per cent larger than the actual expenditures in 1 9 5 2 .^ The tax rates for personal and corporate incomes were lowered again and the estimated tax reduction amounted to more than 100 billion yen. The government expenditure for public works in 19^3 was Increased by UO per cent, from 10$.6 billion yen in 19$2 to 1U7.$ billion yen.^ The government program of loans and investments throu^ government financial institutions and Special Accounts, such as the Japan Development Bank, Industrial Investment Special Account, and Government Trust Funds Special Account, supplied

as much as 2$U billion yen in 19$3 compared with 238 billi on in 19$2 .^ The Bank of Japan was liberal in extending its credit to commercial banks in 19$3* Its outstanding loans and rediscounts at the end of 19$3 amounted to 299 billion yen idiich was 3k per cent greater than the year before. Commercial banks were encouraged to expand their credit to industry and their outstanding loans and discounts at the end of 19$3 amounted to $U3 billion yen, or 2$.$ per cent greater than the year before.^

^Japan Statistical Yearbook 19$9, p. U0 7 . %endai Nihon Shihonshugi Taikei, p. 202.

^Kelaai Yooran 1962, p. 6 9 . Sendai Nihon Shihonshugi Taikei, p. 202. %eizai Yooran 1962, pp. 72-73. 71 As a result of these positive fiscal and monetary measures the total capital formation In 19^3 rose to 1,978 billion yen from

1 ,6 7 8 billion yen In 1952.^ Even though the econonlo growth rate of

6 .7 per cent In 1953 was lower than the 10.5 per cent of 1952, industrial production Increased by 25.5 per cent in 1953 as compared with 7.2 per cent In 1952. According to the production Index with 1955 as the base, the industrial production was 65.5j 70.2, and

8 5 .7 for 1 9 5 1 , 1 9 5 2 , and 1953, respectively. Because of the domestic economic boom, Japanese exports in

1953 remained about the same as In 1952. On the other hand, the rapid industrial expansion was possible only with Imports of more raw materials and other commodities. With the foreign exchange reserves of more than one billion dollars, the government encouraged imports at lowered prices because of the recession. Thus, total imports in 1953 amounted to as much as $2.Ip. billion. Even thou^ Japan earned $761 million throu^ United States Special Procurement, besides the regular export receipts of $1,275 million, foreign exchange reserves dropped sharply to $637 million by the end of March, 1961*..^ Domestic prices, which had been relatively stable during the first half of 1953, began to rise during the second half. Thus, the government switched its fiscal and monetary policy from promotion of economic expansion to restriction of economic activity in October, 1953.

^Kokumin Shotoku Hakusho I960, p. Up. ^Keizai Yooran 1962, p. 173. 72 2. Restrictive measures, 19^3-195U Ih order to put the Japanese econony on a sound basis, the government took three basic measures: (l) tight money, (2) curtail­ ment of imports, and (3) contraction of the government expenditures for 193U. October, 1953, the Bank of Japan began to tighten import financing. Even though its official rediscount rate remained at 5«8U per cent, the Bank raised its money rates for excess amounts of loans to individual banks three times between October, 1953, and

March, 195U î from 7 per cent at the beginning of 1953 to 8.5 per cent by mid-195U.^ The curtailment of credit was reflected in the decline in the money supply for industry. The total supply of industrial funds fell from 9kS billion yen in 1953 to 562 billion yen in 195U» The outstanding bank loans for import financing fell from 13U*U billion yen at the end of 1953 to 68.5 billion yen at the end of 195U.^ The total bank deposits outstanding increased by 329 billion yen in 19$k while the total loans and discounts increased by only 2U0 billion yen.^ Thus, the commercial banks repaid their loans to the

^Besides its official interest rates, the Bank of Japan applies progressive rates depending on the amount of deposits at individual banks, types of loans, and amount of loans, in order to discourage excessive borrowing by banks from the Bank of Japan. ^Japan Statistical Yearbook 1959, p. 290. ^Ibid., p. 299. ^Keizai Yooran 1962, pp. 72-73» 73 Bank of Japan and the central bank’s loans and rediscount outstanding fell from 299 billion yen at the end of 1903 to 2i$3 billion yen at the end of 190U* Even though the value of the total imports in 190U which amounted to $2,399 million, was only a little lover than that of imports in 1903, foreign exchange allocations, effective April 1, 190k, sharply slashed allotments to importers of non-essential commodities. The government cut back its original expenditure budget of General Account for 190k to less than one trillion yen, compared with the final budget of 1,10 trillion yen for 1903»^ The Japan Development Bank, the government financial institution for long-term credits for industry, increased its outstanding loans by only 32 billion yen in 190k.compared with an increase of 63.7 billion yen in 1903.^ As a result of the restrictive monetary and fiscal measures, the amount of Bank of Japan notes in circulation at the end of 190k was 6.8 billion yen less than a year ago and the wholesale price index dropped by k.7 per cent in 190k.^ On the other hand, exports increased in 190k by 28 per cent, from $1,270 million in 1903 to $1,629 million. The current account of the balance of payments in 190k fiscal year was favorable by

^Japan Statistical Yearbook 1909, p. k07. ^Ibid., p. 312. ^Ibid., p. 326. 7U $3UU million as compared with the deficit of $313 million in the previous year.^ Because of the increase in exports the tight money condition was alleviated in the second half of 19^1», and the real gross national product increased by 3,3 per cent in 19^U* 3. Stabilizing measures, 19^$ In 195^ Japan had the best rice crop in its history thus far, 12.U million tons compared with 9.1 million tons in Exports increased by 23*U per cent in 1955* Subsequently, domestic econondo activity was greatly stimulated. However, the government's original expenditure budget for 19$$ was again held to less than one trillion yen with the purpose of making Japanese industry competitive in the world market by keeping domestic prices from rising. The monetary policy continued to be restrictive in 1995 > Since the tight money policy placed emphasis on the restriction of excessive inports, all preferential arrangements by the Bank of Japan for import financing were either curtailed or abolished. In 19$$t the government poured into the economy 276 billion yen more than it received, mainly through the government's purchase of the bumper rice crop and also through the excess disbursement of domestic currency to Japanese export firms in exchange for foreign currency earned by these firms.^ Consequently, the money market

*^i z a i Yooran 1962, p. 172. ^Japan Statistical Yearbook 1959j p. 86. ^Keizai Yooran 1962, p. 69. 75 eased with the moderate demand for funds. Bank deposits rose by 688 billion yen in 1955 lAile loans increased only by 28U billion yen. The banks repaid their loans to the Bank of Japan, and the central bank's loans and rediscounts outstanding at the end of 1955 declined sharply to only 32 billion yen as compared with 2li3 billion yen a year ago. The ratio of bank loans to deposits fell to 85 >8 per cent at the end of 1955 compared wibh 95.9 per cent a year ago. The so- called "over-loaned" condition was improved.^ In August, 1955, the Bank of Japan raised its rediscount rate from 5«8U per cent to 7.30 per cent. Previously the rediscount rate had been lower than the interest rates charged by commercial banks oa their loans to business firms, while there were certain restrictive rates to be applied on excessive amounts of loans from the central bank to commercial banks. Thus, the rediscount rate policy of the central bank had not been very effective for credit control. The revision of the central bank's interest policy in August, 1955, was an attempt to make the official rate more effective for monetary control and also to rectify what had been a distorted interest system. Largely because of the stabilizing fiscal and monetary measures, the wholesale price index for December, 1955, was a little lower than a year ago. There was contraction of credit even thou^ the amount of the Bsurik of Japan notes in circulation increased during

Ijapan Statistical Yearbook 1959, pp. 286-7. ^Keizai Yooran 1962, p. 172. 76 19$$» The balance of payments on current account in 19$B fiscal year was favorable by as much as 1535 million. Industrial production increased by 7.6 per cent and tne real gross national product increased by 10.3 per cent as compared with the growth rate of 5.05 per cent in 195U. Thus, 1955 was called the year of "the quanti­ tative boom" or "economic growth without inflation." U. Measures for expansion, 1956-1957 The rapid economic growth without inflation achieved in 1955 was possible only because of the existence of a large stock of raw materials, idle production capacity, and unemployed labor, all of which were created by the restrictive policy of 195U and 1955. From the beginning of 1956 the idiolesale price index started to rise. In order for Japanese export industries to be competitive in the world market, the modernization of plants and equipments through technological improvement was urgently required. The government expenditures showed only a moderate increase over that of 1955, but the government encouraged modernization of Japan's economic structure and industrial production facilities by mobilizing not only public funds but also as much private capital as possible. Subsequently, bank loans increased by 870 billion yen in 1956 compared with 26U billion yen in 1955. Bank of Japan loàns aid rediscounts outstanding jumped again from 32 billion yen at the end of 1955 to lUO billion yen at the end of 1956. Since the Bank of Japan also absorbed 36.1 billion yen of short-term government securities sold Iqr financial institutions in 1956, the total change 77 in credit supply by the central bank was an increase of IbU billion yen in 1956 compared with a contraction of 251 billion yen in 195$.^ Furthermore^ exports Increased by 25 per cent in 1956 and there was a bumper rice crop of 10.9 million tons. Domestic economic activity was further sldmulated and the idiolesale price index rose by 8.6 per cent in 1956. The government encouraged imports of necessary raw materials and capital goods to meet the demand of expanding industries. Thus, industrial production increased by 22 per cent in 1956 and the real gross national product increased by 9.0: per cent. The gross capital formation amounted to 31.8 per cent of the gross national product in 1956 compared with 25-U per cent in 1955. 1956 was regarded as the year of unprecedented investment boom thus far in Japanese economic history; By this time, however, bottlenecks, particularly in electric power and steel supply, and also in transportation, began to appear. At the same time, attention was called to the fact that income distribution among the people was becoming more unequal. Under these conditions, in order to promote balanced development of various industries and more equalization of income distribution, the govern­ ment proposed for 1957 an increased budget of 1,3U7 billion yen with an income tax reduction of 100 billion yen. Also, the public investment program was expected to spend U09 billion yen, 62 billion yen more than for 1956.^

^Japan's Postwar Economy, p. 103. 2Kokmnin Shotoku Hakusho I960, p. li*3. 3Gendal Nihon Shihonshugi Taikei, pp. 259-26U. 78 On the other hand, because of the increase in imports, the favorable balance of pfymehts on current account declined to 38 million dollars for 1956 fiscal year as compared with 535 million dollars in 1955* Moreover, there was a deficit of 38U million dollars on current account for 1957 calendar year and Japan's foreign exdiange reserves dropped to 525 million dollars at the end of 1957.^ 5. Restrictive monetary measures, 1957-1958 While the government was following the fiscal policy for economic expansion in early 1957, foreseeing inflationary pressures from the fiscal policy and serious deterioration of Japanese balance- of-payments conditions, the Bank of Japan raised its money rates for rediscounts and loans to restrict loans and improve the balance of payments. The official rediscount rate was raised in March from 7.30 per cent to 7.69 per cent, and again in May to 8.39 g per cent. The wholesale price index started declining in February and industrial production began to slow down in April. Despite the tight money policy, however, bank loans increased by 958 billion yen in 1957 compared with 87O billion yen in 1956. Bank of Japan loans and rediscounts also increased sharply from lUO billion yen at the end of 1956 to 552 billion yen at the

keizai Yooran 1962, p. 172. ^kawamura, Kinji, op cit., p. 121. 79 end of 19^7.^ The investment boon continued in 19^7 because most of the investment projects were of long-range programs, and at the same time modernization of Japan's economic structure and industrial production facilities had to continue in order to improve the competitive position of Japax^se industry in the world market. The total imports in 19$7 amounted to $U>28U million; the exports, $2,8$8 million. The trade deficit in 1957 was $1,1*26 million, which was the hipest thus far in Japanese foreign trade history. But imports in the last three months of 1957 declined from the previous period and imports for the first six months of 1958 were $1,578 million compared with $2,3UU million in the same period of 1957.^ Even though the exports in 1958 remained almost at the same level as in 1957, the balance of payments condition began to improve in the first half of 1958 due to the sharp decline in imports. Since the main objective of the restrictive monetary policy was to restore a sound condition in the balance of payments, the Bank of Japan changed its policy and the rediscount rate was lowered to 7.6? per cent in June, 1958. 6. Measures for rapid and stable expansion, 1958-1959 Because of the restrictive monetary measures between March, 1957, and June 1958, and the slight increase in exports in 1958,

^Japan Statistical Yearbook 1959, pp. 281*-7. ^Ibid., p. 2l*3. 80 the real gross national product increased in 19^8 by on]y 3.2 per cent as compared with 7.9 per cent in 1957. Industrial production remained below the peak level reached in Marché 1957, until December, 1958, except in March, 1958. The wholesale price index remained below the peak reached in January, 1957, for the rest of the 1950*s. However, because of the sharp decline in imports in 1958, the balance of payments on current account was favorable by $511 million in 1958 as compared with the deficit of $38U million in 1957 Foreseeing the improvement in the balance-of-payment conditions, the Bank of Japan lowered its rediscount rate in June and also in September, 1958, to 7.30 per cent. Again in February, 1959, the rate was lowered to 6,9h per cent. ^ The government expenditures of the General Account in 1958 was increased by 12 per cent, to 1.33 trillion yen from 1.19 trillion yen in 1957.^ At the same time, in order to promote capital forma­ tion by business corporations, the corporate income tax rate was lowered by 2 per cent. The public investment program for 1958 amounted to U27.3 billion yen as compared with 395.2 billion yen in

1957.^ On the other hand, largely because of the favorable balance on current account in 1958, the government treasury account made

^Keizai Yooran 1962, p. 172. 2 Kawamura, Kinji, op. cit., p. 121. ^Japan Statistical Yearbook 1959, p. U07. ^Keizai Yooran 1962, p. 50. 81 excess disbursements of 25l billion yen over its total receipts in 1908.^ Consequently, commercial bank loans did not Increase in 19^8 as much as in 19^7 and the central bank's loans and rediscounts outstanding at the end of 19^8 declined to 379.U billion yen from 552 billion yen the year before. The economic growth rate in 1928 was lower than that of 1927 because of the tight money policy between March, 1927, and June, 1928. The new monetary and fiscal policy for edonomic expansion after June, 1928, and its continuation in 1929 became one of the most important factors responsible for an economic growth rate of as high as 18 per cent in 1929. Government expenditures in 1929 were increased by 12 per cent over those of 1928, the increase being especisELly notable in government spending for public investment which in 1929 amounted to 228.2 billion yen, 30 per cent greater ttian in 1928. The amount of money supplied to industries in 1929 rose to 3.69 trillion yen, U7 per cent more than in the previous year. Out of the total money supply for industries, 22 per cent was spent for plant and equip­ ment investments.^ Bank loans increased by 1,008 billion yen in 1929 as compared with 788 billion yen in 1928. Bank of Japan notes in circulation at the end of 1929 increased by 16 per cent, to 1,029 billion yen from 891 billion yen the year before.

^Ibid., p. 69. ^Ibid., p. 70. 82 Japan's exports inoreasad taj 20 per cent in 29$9, from $2,677 nUlion in 19$8 to $3,1|56 million. Since the imports also inoreased, the favorable balance cm current account was only $339 million dollars, $172 million less than that of 19$8.^ Because of the expansion in foreign trade and also the vigorous investment boon, industrial production increased by 2k per cent in 19$9 and the gross national product increased by IB per cent. The wholesale price index rose in 1959 by only 2.2 per cent.^ There are many reasons for the rapid but stable économie expansion in 1959. An important one was the Bank of Japan's effective enforcement of its monetary policy to prevent an excessive rise in bank credit and business expansion. For the first time in Japan's banking history, the reserve deposits system was put in action in September, 1959. The reserve deposits system, adopted in Hay, 1957, provided that the reserve requirements differ in accordance with the size of the bank: for banks idiose outstanding deposits exceed 20 billion yen, the ratio is 1.5 per cant of the average outstanding demand deposits, and 0.5 per cent of time deposits; for smaller banks, it is half of the above requirements. The enforcement of the reserve deposits to be made by the commercial banks at the Bank of Japan became one of the factors restricting the expansion of bank credit. Furthermore, the

^Ibid.. p. 172. ^Japan Statistical Yearbook 1959. p. 326. 83

Bank of Japan raised its redisooimt rate in Deoember, 19$9f from 6,9k

■ 1 per cent to 7.30 per cent, which inoreased the cost of credit. la brief snumary* it nay be stated that the effective ose of fiscal and nonetaxy neasares along with nany other factors made Japan's rapid economic growth In the 19^0's possible despite the frequent fluctua­ tions in econondo activity. It might also be pointed out that for preventing inflation monetary policy seemed to be more effective than fiscal policy. On the other hand, for preventing deflation and expanding economic activity fiscal policy seemed to be more effective than the other, at least at the beginning stage of the policy enforomsent. And lastly, Japan in the 1950* s provided several classic examples of effective use of monetary and fiscal measures.

High rate of capital formation As already pointed out briefly, Japan had years of investment boom during the 1950's and the h i ^ rate of capital formation played a significant role in Japan's rapid economic growth in the 1950's. The amount of gross domestic capital formation in current prices was Ù.U trillion yen, or 12.2 billion dollars, in 1959, more than four times as large as that of 1950. ^ e n thou^ the inventory investment fluctuated greatly, the rest of the private investment and the public investment increased almost continuously every year in the 1950's as seen in Table 16.

^Economic Sgrvey of Japan 1959-60, p. 171. 8U

Table 16 Qross Bonoatlo Capital Fomation by Sector and ParpoeOf Japan» 35U9-1960 (IB millions of dollars) Fiscal Private capital formatica Ym t Total Public Private Residential %uipment ïntentonr 191*9 2,307 830 l,k78 99 802 977 1^90 2,798 926 2,273 166 1,083 1,023 1991 U,622 l,ll*k 3,1*78 199 1,691* 1,989 1952 k,66l 1,317 3,31*9 267 1,980 1,098 1993 9,1*99 1,786 3,709 392 2,22k 1,133 199k U,860 1,61*6 3,211* 369 2,112 733 1999 9,797 1,986 3,810 399 2,160 1,296 1956 8,210 1,922 6,288 91*8 3,813 1,927 1997 8,918 2,21*6 6,672 620 k,70k l,3k8 1998 7,866 2,978 9,288 698 k,983 k8 1999 12,236 3,098 9,138 767 6,029 2,31*2 1960 19,577 3,723 11,891* 992 8,927 2,379

Source: The Cowdttee for Economic DoYclopment» Japan_in tJie Free World Economy* Nev York: April 19o3» Special Supidenant» p. i&l.

The average annoal ratio of the groea domestic capital forma­ tion to the gross national product in current prices was 28.6 per cent in the 19^0's c«q»ared with 19.0 per cent in the 193k-1936 period. The average annual ratio of the gross private capital forma­ tion to the gross national product in current prices was 20.7 per cent in the 19^0's compared with 19.8 per cent in the prewar period.^ The o ratio in the United States in the 1990^8 was 19.1 per cent.

^Koknmln Shotoku Hakusho I960, pp. 11*3 and 170. ^^onomic Report of t ^ President 1962» U. S. Goverrunent Printing bffloe» Waafiing'ton, i). t , s p. èo7. 85 Table 17 ùidex of Private Residential and Equipment Capital Formation in Constant Prices , Japan, 19U9-1960 Fiscal Capital formation index Rate of Tear 193U-1936-10D Increase

1 9 3 U - 3 ^ 100.0 191(9 85.3 1950 9U.U 10.7% 1951 102.5 8.6 1952 123.U 20.U 1953 137.6 11.5 195U 11(0.9 2.U 1955 11(3.6 1.9 1956 221.5 5U.3 1957 273.0 23.2 1958 ^ 291.U 6.8 1959 369.3 26.7 I960 509.3 37.9

(*)pcr calendar years. Sonrce: Koknmin Shotoku Hakusho I960, p. 169.

As Table 17 shows, the average annual rate of increase in the private residential and industrial equipment investment in constant prices during the 1950's vas 16.65 per cent compared with on]y 3.1 1 per cent in the Ihiited States. JnvBstment in productive facilities brings about both an increased demand for investment goods and an increase in the productive capacity of industries. An intense, quite often excessive, competition among Japanese firms based on the vigorous

^Ibid.. p. 208, 86 entrepreneurial spirit of postwar Japanese businessmen was no doubt one of the basic factors responsible for the high rate of capital investments. Regardless of how eager Japanese Industrialists have been to invest In new plant and equipment* they would have been unable to do so if the accumulation and supply of capital had been insufficient. Japan has long maintained a h i ^ rate of savings, especially personal savings. According to the national income statistics, the average propensity to save, that is, the ratio of personal savings to the disposable income, was 11^.7 per cent in 1S$0 and as high as l6.$ per cent in 19$9, as compared with only 7 per cent in the IMted States in 19$9.^ la Japan, most of these savings found their wfgr into banks and other financial institutions, irtiich have loaned them to business enterprises.

Technolo^cal innovation and changes In ind^trial struoture Another important factor responsible for the high rate of capitial formation in the 19^0's was technological innovation, that is, the introduction of new products or new raw materials, or new or great improvements in productive equipment and processes. In Japan technological innovation has been taking place in three ways. First, since Japan was isolated from advanced Western countries for more than ten years because of the Second World War,

^Kokgato Shotoku Hakusho I960, pp. 1W&-S, and Statistical Abstract of W.ted states p. .^66...... 87 Japan tried in the postwar years to incorporate the new technology developed in those nations daring the period of isolation. Second, Japan has been trying also to adopt new technology and new products currently being developed in the advanced countries, last, addi­ tional technological innovation of its own has been taking place in various fields of industry. Through technological innovaticsi Japanese industry made large investments in heavy and chemical industries in the 19$0's, especially in the second half of this period. According to the industrial production index, the industrial production in 1959 was nearly four times as large as that of 1950. The average annual rate of increase in industrial production in the 1950*s was 17.1 per cent compared with 11.3 per cent of West Germany.^ According to an estimate in the White Paper on Science and Technology, 1962, made public by Science and Technology Agency of the Japanese government, new products accounted for approximately 30 per cent of the increase in manufacturing production since 1955» The average annual rate of increase in labor productivity in the manufacturing industries was 9.2 per cent between 1955 and 1960.^ All these gains in industrial production are, no doubt, due to the technological innovations introduced into Japan, particularly in certain heavy and chemical industries such as trans­ portation machinsxy and equipment, electrical machinery and instru­ ments, general machinery, chemical manufacturing, and iron and steel.

^Keizai Yooran 1962, p. 280.

^Ibid., p. 230. sa Especlally noteworthy la the fact that whereas between 1951- 1955 foodetnffs, textile, and dhemloal industries were major oontzl- butors for the total increase in industrial prodaoti

^Economic Survey of Japan 1959-60, p. 39. ^Keiaal Yooran 1962, pp. 89 and 91i 89 Table 18 Percentage IMLstribatlon of Manufacturing Producticn by Industry, Japan, Selected Tears 1930-1909

Industry 1930 191*0 3 ^ 1 9 ^ 1909 Heavy 30.3 63.0 02.0 02.0 62.1* , Chemical 15.2 17.0 21.1* 19.0 11*.9 Ifetal 8.U 20.6 16.1* 17.1* 12.6 Machinery 11.7 20.0 U*.2 10.1 3l».9 li^t 6I*.7 36.0 1*8.0 1*8.0 37.6 Pood 16.1 9.1 12.0 17.3 7.3 Textile 36.6 18.0 23.3 17.0 9.0 Others 12.0 9.U 12.2 2 M 20.8 Total 100.0 100.0 100.0 100.0 100.0

Source: Eaisetsu Nihon Eeisai Tookei, p. 61*, and Supplement, p.

32.6 per cent in West Qermary.l Thus, It may be concluded that Japan has finally joined the ranks of the world's leading industrial nations. But Japan's per capita national income remains still far behind that of the other industrial nations. One of the main reasons for the low national Inctmie per capita in Japan is the so-called "dnal-struoture" o£ the Japanese economy. Even thon^ it has been shifting more and more into an economy oriented toward the heavy and chemical industries, Japan had in 1909 not only 30 per cent of the total labor force in agriculture but also an overwhelmingly large number of small industrial and commercial establishments. Small business enterprises exist side by side with modem giant corporations. Both productivity

^Japan in the Free World Economy, fecial Supplement, p. 20. 90 axid wage levels in these small firms are extremely low; in some oases less than half of those found in large industrial firms. This state of affairs in the Japanese economy is called "dual-structure." And it is this dual structure of the economy that has given rise to a greater export-grcwth potential, higher rate of capital formation in big business, and therefore a more rapid economic growth in Japan both in the prewar and postwar periods. Since the problem of this dual structure of the Japanese econc^ has largely resulted from the overpopulation in Japan, this problem will be analyzed in relation to labor conditions in Japan in the following section.

Abundant labor and the dual structure ob the .Japanese economy The existence of an abundant, relatively well educated labor force in Japan was also one of the most important factors responsible for Japan*8 rapid economic growth in the 19^0's as well as in the prewar period. Since Japan opened an economic relationship with the rest of the world, the Japanese government has always emphasized the importance of general education. Today, Japan*s illitera

^Keizal Yooran 1962, pp. 13, 22U, and 270,

^ 0 . cit. 92 amounted to 5$ per oent of the total labor force in the country.^ Ota the other hand* the incarne earned by these 35 per cast represented only 16.5 per cent of the total national income in 195?.^ In 1959 more than half of farm workers were members of farm households and many of then remained on the farm while they were waiting for job opportunities in other industries. Thus* even thou^i the employment statistics indicate a condition of almost full employ­ ment existed all throu^ the 1950's* the increasing demand for labor ly rapidly expanding manufacturing industries and the service industry were met without causing any inflatimiary pressures on the eoonouy. Because of the increase in demand for labor* manpower moved from agriculture to urban industries* and from smaller firms to large enterprises. As already mentioned early in this chapter* because of the government's labor policy and the Japan's postwar labor movements, idle working conditions of labor have been much improved and the wages of labor greatly increased. In the manufacturing industry the total employment increased by 68 per cent between 1951 and 1959 and the real wages increased by W6 per cent. At the same time* labor productivity in the manufacturing industry increased by 76 per cent in the same period. Largely because of this faster rate of increase in labor productivity than in real wages* along with lowered prices

ilbid. 3 pp. 22U-226, ^Kokumin Shotoku Hakusho I960* pp. 160 and 162. 93 for imported raw materials, the price level in the 19^0's remained relatively staKLe even with the rapid économie growth.^ In addition to the abundant, relatively well edacated labor supply and the rspid increase in labor productivity, the dual structure of the Japanese econony is also a contributing factor for the rapid economic growth in the 19$0's, In Japan, at one extreme are large enterprises which, by their use of advanced techniques and investments of a relatively large amount of capital per wozter, produce a relatively hi ^ output per man-hour. At the other extreme are small firms which differ in all these respects. The small firms are often subcontractors for the larger ones. Even thou^ differences in wage rates for similar labor among different industries and amcmg firms of different sizes are found in most countries, such wage differentials are exceptionally large in Japan, since the demand for labor by the hi^-paying, highly productive modem industries is still rather small. In the 1956-19^8 period, labor productivity in agriculture was only 36.7 per cent of the labor productivity in the manufacturing industry.^ Even within the same manufacturing industry the 19$9 wage level in firms with $-29 workers was only per cent of the one prevailing among firms with more than ^00 workers.3 While there were

1 ...... Japan in the Free World Econony, Statistical Supplement, p. I|^. ^Ookita, Saburo, Shotoku Baizoo Kelkakuno Kaisetsu (Commen­ tary of Income-Doubling Plan), tokyo: KiHion Keizai. ShinbuMba 19^,p 93.

^Economic Survey of Japan 1959-60, p. 189 . 9k

3.67 million business firms in Japan in I960, more than 99 per oent of them ware small, employing less than 100 workers. Also in I960 there were 2^.7 million workers in nnn-agrioultural establishments and 73 per omit of them were in firms with less than 100 persons.^ The medium and small business firms with less than 1,000 empl^rees hold an important position in Japanese industrial production and esqports. In 1957 the output of these medium and small firms respresented 51.6 per oent of the total industrial production. Their esqports amounted to 55*U par cent of the total exports in 1957.^ Due to differences in systems of compensation it is difficult to conqpare wage rates among different countries, but it can be estimated that Japanese labor costs per hour are probably sometdiat below those of Italy, about half the cost of labor in West Germany and France, and about a fifth to a fourth of the U. S. oost.^ Ih addition to the low average level of Japanese wages, as compared with other industrial nations, the Japanese wage structure has the unusual characteristics that there are large differences in wage rates for similar labor among different industries and among firms of different sizes. This duality of the Japanese economy and wage structure naturally affects the distribution of Japanese eoqports. To advanced countries Japan exports labor-intensive products, for examples, toy;,

h o L za Yooran l 1962. pp. 12U-127. ^Shotoku Baisoo Keikadcuno Kaisetsu, p. 113. ^Japan in the Free World Economy, p. 2U» 9$ ohina-vare^ and bloases made by small firms employing very low-waged labor, and also saoh items as ships, cameras, and transistor radios idiieh are manufactured by large industrial firms but require large aoKMdkt of sklllad labor. On the other hand, to underdeveloped countries Japan exports oapltal-intenslve products, such as rolling stock, chemical fertilizer, textile maoblnezy, cement, steel, and artificial fibers.

Expansion of domestic market Another important factor respcmsible for the rapid economic growth in the 19$0's is a great expansion of Japan's domestic market. As mentioned already, Japan's prewar economy was characterized by a domestic market restricted by the low wages of labor and a limited farm income. But the democratization policies enforced by the Occupation authorities in the immediate postwar period had a considerable effect oa this market. Because of the new labor policy of the government, postwar Japanese labor movements, and the rapid increase in industrial production, the wages of labor have greatly increased and working conditions have been considerably improved. At the same time, thanks to the agricultural land reform and the govern­ ment policy of supporting prices of major farm products, the financial position of farmers has been greatly strengthened. The share of personal income from rent, interest, and dividends in the national income has fallen sharply, while that derived from salaries and wages has risen significantly, as has farm income. The personal income derived from rent, interest, and 96 dtvidenâs In the fiscal year was only 7.9 per cent of the total national income, as compared with 22.1 per cent in the 193U-1936 period. The wage-eamers' share of the distributed national income rose fr«u a prewar average of 38.9 per cent to $0.7 per cent in 1959. The farmers' share in 1930 was only 9.1 par cent but it increased to 33.8 per cent in 19$9, while the ratio of farm workers to the total employed labor force declined from U6 per cent in 1930 to 3$.2 per cent in 19$9-^ Thus, with a redistribution of the national income in favor of wage-eamers and farmers, their increased purchasing power has greatly expanded the consumption of the domestic market in Japan. The real consumption per capita in 1959 was 37 per cent higher than that of 193^-1936 period. The total real personal consumption expenditure in 1959 was dk.$ per cent higher than in the prewar period, and it increased in the li950 's at an average annual rate of 8,57 per cent.^ The change in the pattern of consumption as well as the rise in its level is significant. In the immediate postwar period foodstuffs represented the largest single item of personal consumption expenditures, but with an increase in distribution of income purchas­ ing power shifted from foodstuffs to textiles. And the recent trend is from textiles to durable consumer goodsj housing, and services.

^okumin Shotoku Hakusho 1960, pp. 166-167, and Keizai Tooran 1963!. p, SzL. Zgokumin Shotoku Hakusho I960, p. 183. 97 Thla change in eonsuaptlon pattern is called in Japan the "consumption revolntian*" This rapidly increasing expenditure on consumer durables has* in turn* promoted the development of the ma^nery* steel* and other related industries. According to the "Future Consumer Demand Survey" conducted by the Economic Planning Agency of the Japanese government* itli.7 per cent of the city households owned television sets in February* I960* though production of television sets was started in Japan only in 1953* In February* I960* 1^0.$ per cent of the city households owned electric washers* and 10.1 per cent owned refrigerators.^ The production and sales of these durable consumer goods are still expanding very rapidly in Japan. The farmers' consumption level in 1959 was U2 per cent higher than in the prewar period* while that of city wage-eamers' rose by 28 per cent. In 1950 Japanese farmers owned only 13*000 tractors but they owned 517*000 tractors in February* 1960.^ Other mechanical and electrical agricultural machines have also become very popular among Japanese farmers recently. Furthermore* the importance of the expansion of the domestic market of investment goods needs to be emgJiasized as well as that of the consumer goods market. The prewar Japanese economy has grown largely through the development of such light industry as textiles* and most of the machines and equipment for new industries introduced into Japan were imported from advanced countries. In the postwar

^Eeizal Tooran 1962, p. 2U6. ^Loc. cit. 98 period, however, the Japanese eoonwy has been shifting rapidly toward an economy based on heavy and chemical industries. Indth the rapid expansion of metal processing and fabricating industries and the development of the machine and tool Industry, Japan can now produce most of the machinery and equipment necessary for modernizing its industries. If Japan had continued to import most of these capital goods, the large sums required for their imports would have easily aggravated the balance of payments problem of Japan, and the economic growth rate would have been much slower. % e growth of Japan's ability to produce capital goods and the expansion of the domestic market for them should, therefore, be regarded as one of the factors responsible for the rapid economic growth of the 19^0's.

Rapid increase in exports A final factor to be considered as one of the most important in the rapid economic growth of Japan in the 19^0's is Japan's high rate of increase in exports. The value of Japan's total exports in

1950 was $820 million. This jumped to $3,U56 million in 1959, a fourfold increase in ten years. The dollar value of Japanese exports based on customs statistics increased in the 1950's at an average annual rate of 23.1 per cent. This rate of increase in exports is about three times as high as that of the world average. According to the quantity index of exports, the volume of Japanese exports increased at an average annual rate of 16.7 per cent while that of world exports increased at 6.5 per cent in the 1950's. 99 Since Japan dépends so nuch txpon Imports of various raw materials for its industrial production, she has to earn sufficient foreign exchange to pay for the necessary materials imported. Thus, the expansion of exports is vital to Japan and export promotion has been given special priorily in its economic activity. However, it should be pointed out here that the quantify index of Japanese exports reached the prewar 193L-1936 level only in 19S9 tdiile most of the other indicators of the Japanese economy reached prewar levels by the early l^$0's. Japan's share in world trade in 19$9 was only 3.U per cent for both esq>ort and import, as oompared with 5*3 per oent for export andU«6 per cent for import in 1938. Japan has not yet regained its prewar share in world trade in spite of its rapid econcxmic growth andforeign trade expansion fifteen years after the Second World War. Reasons for such delay in the recovery of exports will be discussed in connection with a detailed analysis of Japan's balance of international payments in the following chapters.

Summary Nine distinct, though interdependent, factors may be singled out as of particular importance in promoting the high growth-rste of the Japanese econony in the 1950*s. 1. The postwar social and economic changes caused by the defeat and occupation are of considerable importance. The break-up of the Zaibatsu decentralized control of the Japanese econony, creating the needed conditions for vigorous competition and the emergence of 100 new aggressive leaders in Japanese industxy. The land reform program, by transferring control of the greater portion of the land to the actual cultivators, freed the former tenants from high rentals. Besides, the govemnent-snpported high prices for major agricultural products and the increased production greatly raised the income of Japanese farmers. Also the encouragement of industrial unionization by the government in the postwar years along with the rapid expansion of industrial production diverted a greater portion of the national income to wages and salaries. Thus, the demand of the domestic consumption market was greatly expanded. The loss of Japan's former colonial empire eliminated the necessity of government investment in these areas. The complete absence of military spending in the immediate postwar years removed a further drain on the economy. Even after the introduction of the self-defense force the percentage of national income devoted to armaments remained far below both the prewar Japanese level and the present spending of other leading industrial nations. 2. In the immediate postwar years Japan's need for foreign exchange was covered to a great extent by U. S. government economic aid. With the outbreak of the Korean War, this source of income was replaced by "Special Procurement," the American policy of obtaining, so far as possible, needed military supplies locally. The foreign exchange reserves so created were to enable the Japanese government to adopt, at times, policies idiich could not have been justified on the basis of the merchandise trade balance alone. 101 3. With the emergence of the two great power blocs after the Second World War there was a consequent stimulus to intra-bloc trade and an expansion of the world economy. This growth in international trade in turn opened many new potential markets to Japan.

4. The monetary and fiscal policies adopted by the Japanese government in the 1950's were largely centered around the foreign exchange reserve position of Japan. When the reserves were rela­ tively hi^, credit could be safely eased, government expaiditures raised, and a rapid rate of economic expansion encouraged, even if exports did not keep pace with imports. When they dropped, the government found it necessary to contract credit, thereby slowing the growth rate, reducing imports, and raising exports proportionally and

80 increasing the foreign exchange reserve. When the reserves were again in a healthy state, the entire process could begin over. Particular attention was paid by the government to such problems as modernization of Japanese industry, prevention of inflation, and achieving a balanced economic growth.

5. The government policy in favor of modernizing Japanese industry and the Japanese habit of saving a large proportion of disposable income provided the industries with funds necessary for the extremely h l ^ rate of plant and equipment investment needed to keep Japanese industry technologically abreast of its. competitors abroad. In addition, the government maintained a h i ^ rate of investment in the public sector in the interest of a balanced development of the economy. 102 6. The high rate of capital formation and government encouragement of modernization allowed Japan to close the gap lAioh had opened during the Second World War between itself and the Western industrial nations. The introduction of new process and productsf that is, technological innovation, stimulated the domestic market both for consumer goods and capital goods. The productive capacity of Japanese industry and the productivity of labor were great]y increased. Furthermore, the structure of the Japanese economy began to display the shift to heavy and chemical industries characteristic of mature industrial development. 7. Despite the improvement in working-class income caused by the above-mentioned social and economic reforms, Japan still possesses a large under-emplqned labor force, though there is little suîtual unemploynent. A very large proportion of Japanese industry remains in the hands of relatively small business. %iough @11 countries display some differential in wages paid by large and small firms, this difference in payment is exceptionally large in Japan. Thus, the "dual structure"— relatively a few large businesses paying high-rated wages and having a h i ^ capital investment per worker, and many small ones with limited capital and low wages. This peculiar structure has allowed the Japanese export trade to develop in two directions, exporting labor-intensive (particularly skilled labor) products to industrial countries and capital-intensive products to

underdeveloped nations. 8* Despite the relatively low wage rates, however, there has been sufficient buying power to allow continuous expansion of the 103 domestic market, the growth in sales of electrical appliances being particularly notable. And this "consumption revolution" has in turn produced a demand for the necessary capital goods needed to manu­ facture the goods demanded by the consumer. 9. And finally, Japanese exports have continued to expand during the postwar period, both in dollar value and quantity, though Japan has not regained its prewar share of world trade in 1959. As is evident, most of the above-mentioned policies and conditions favor the expansion of Japanese exports, which in turn provides the foreign exchange necessaiy to sustain econondo growth of Japan. CHàPTER FODR

JAPAN'S BALANCE OF INTERNATIONAL PAYMENTS

Balance of pigraents anajjrsla

The term "balance of international payments" waa defined earlier as "a statistical statement idiich lists a U the commercial and financial transactions carried on between the citizens and government of a country and the citizens and governments of all other countries during a calender year." An examination of the balance of international payments is perhaps the most useful tool of the economist for comparing the relative positions of two national economies. And, as has been pointed out, the condition of its balance of payments is of particular importance for Japan, since it helps to determine the growth capability of the Japanese econony as well as Japan's international economic position.

The major classifications used in recording all trans­ actions lAich enter into the balance of payments are "current account," "capital account," and "movements of monetary gold." The current account consists of purchases and sales of goods and services during a calendar year. It may also involve unilateral transactions, that is, gifts, pension, remittance, and the like. The capital account comprises the net flow of short- and long-term capital,

lOU 105 idiich represent ehsnges in the eoctemal debtor-ereditor position of a country. The movement of monetary gold is placed in a separate category because of its importance in making adjustments for the credit or debit balance in the other accounts.^ In order to make a satisfactory analysis of Japan's balance of international payments in the 1950's, it is necessary to examine first the condition of the balance in the prewar period and in the period immediately after the Second World War.

The prewar balance of payments Japan had continued to have an adverse balance in merchandise trade through almost all the period since the establishment of its modem government in 1868, mainly because the government preferred to modernize rapidly Japanese industries through the incorporation of Western technology. Also, for the development of new industries, credits were provided easily fay the government, and the government increased its public debt fay borrowing from the Bank of Japan. Until 19lU Japan's unfavorable balance on the current account was covered fay a continuous increase in its foreign debt. However, Japan's balance-pf-paymwts position was sufficiently adjusted so that a gold standard could be adopted in 1897. The par value of the yen was fixed at L9.85 cents, approximately two yen to one U. S. dollar. During World War I Japan enjoyed a favorable balance of trade. After an embargo on gold export was established in 1917, Japan's specie holding rose to as high as 2.18 billion yen in 1920.

^owel, Lawrence W., op. cit., pp. 76-77. 1 0 6

At the same time, Japan's Investments and loans abroad increased so substantially that Japan became a net creditor country in 1919 with a net outstanding credit of 1.37 billion yen.^ The so-called "invisible"^ trade on the current account, such as shipping and insurance services, continued to be favorable from 1915 on. But the adverse balance of the merchandise trade in the 1920*3 kept the free market value of the yen well below par, being quoted at, for example, 38.5 cents in 1923. A reduction in Jean's foreign exchange reserve and another increase in foreign debt financed the excess of imports over exports, with the result that Japan was a net debtor country again in 1929 with a net foreign indebtedness of 798 million yen.^ In the midst of the world-wide Great Depression Japan re-established the gold stsuidard system in January, 1930. Despite the restrictive economic policy of the government, merchandise imports continued to exceed exports and there was substantial gold outflow from Japan until December, 1931, when the government again placed an embargo on gold export. The foreign exchange rate of the

^#)ulton, Harold W,, J^an; An Economic amd Financial Appraisal, Washington, B.C. : tche Brookings institution, 1931, p p . ^ -3nd U12. ^Intemational transactions are commonly classified into "visible" and "invisible" items in the balance of payments. "Visible" items consist solely of merchandise, i.e., of things idiioh can be seen and counted or measured. "Invisible" items are all other intangible items, such as shipping services, tourists' e^qpenditures, and loans. ^Moulton, Harold W,, op. cit., p. U03. 107 yen dropped to as low as 2$ oaits in 1933, and the fall in the exchange rate promoted Japanese exports. Ëven though the value of Japanese imports still exceeded that of exports, the current account was favorable during the 1932-1936 period, since the deficit was more than covered by income fram shipping services and investments abroad. The importance of this "invisible" trade on the current account may best be gauged by the fact that the total export surplus of U.U6 billion yen in this trade for the 190U-1936 period exceeded the total of the excess of merchandise imports over merchandise exports in the same period by UOO million yen.^ Japan earned most of this by its merchant marine operation. Thou^ the regulations controlling foreign, exchange became even stricter in the years following Japan's abandonment of the gold standard^ Japan's total foreign investment on capital account in the

I93O-I936 period exceeded its total borrowing by a substantial amount, mainly because of Japan's investments in Manchuria and China. Japan again became a net creditor country by the mid-1930's. To conclude this brief sketch of prewar Japan, the balance of psynents in 1936 will be examined as a representative year which can be compared with the postwar years. First, as seen in Table 19, there was an import surplus in the merchandise trade. But the export surplus in the invisible trade of the current account, such as foreign travel, shipping, and insurance was more than sufficient to

^suchiya, Rokuro, Keizai Seichoo to Kokusai Shushi (Economic Growth and International Balance of Payments), Tokyo; Chuoo Keizaisha, 1961, p. 306. . 106 cover the onfavorable balance of the merchandise trade. The income earned by Japanese commercial fleets mas especially important, amounting to about 83 per cent of the total surplus in the three items of foreign travel, shipping, and insurance.

Table 19 Balance of International Payments Japan, 1936 (In millions of dollars) Current transactions Receipts Payments Balance

1. Merchandise ' 1,015.1* 1,027.2 —II.8 2. Foreign travel 25.U 16.5 8 .9 3. Shipping 96.1 32.1* 6 3 .7 1*. Insurance 39.8 3 5 .3 U.5 5 . Investment income 9 3 .5 li3.1 5 0 .U 6. Government transactions 12.3 U9.5 -37.2 7. Others 10. U 16.0 - §»6 Sub-total (Items 1-?) 1,6%.) 1,660.5

8. Unilateral transactions 3 8 .7 1.8 3 6 .9 Total of current transactions T733T.5 109^,8 Error and («mission - 9.1* Final balance of current transactions Movements of capital and monetary gold Assets liabilities Net assets 1. Private long-term capital 26.0 - 2*U 28.U 2. Private short-term capital 22.0 -12.3 3U.5 3. Government and financial Institutions’ long-term capital -IU.9 lb.9 U» Monetary gold 22.6 22.6 ïotal 7?:? ■-59V6 100.1*

Source: Sengo Keizaishi^ pp. U78-U79. 109 As for Investnent profits, Japan received more than it paid out. Japan was a net creditor country in 1936, nature enough to have net receipt of profits and interest payments on investments. The final balance of current transactions was favorable by $100.1*, million, but it should be noted that the net receipt of unilateral transactions amounted to almost a third of the net receipt on all the current transactions. In the capital account, on the other hand, Japan paid its old foreign debt and, at the same time, increased its capital export mostly by reinvesting the investment income from abroad. The net increase in Japan's foreign assets amounted to $77.8 million. The surplus of $100.1* million on the current account financed partly the $77.8 million increase in the foreign assets, and the rest of the balance was settled by receiving monetary gold of $22.6 million. However, the capital export of $1*8.0 million amounted to only i*.7 per cent of the total merchandise exports in the same year.

The balance of payments between l9z*6 and 191*9 Compared with the balance-of-payments condition in the prewar period, the international payments situation after the Second World War has radically changed. Immediately after the war all Japanese foreign trade was placed under strict control of the Occupation authroities and conducted on a govemment-to-govemment basis only, with the Supreme Commander of Allied Powers acting for the Japanese government. The United States Commercial Company was designated to act for the SOAP in sales of Japanese goods abroad, while the n o Japanese government established in December, a trade board BooeU-^Ihoo), to parehase Japanese goods made for export, and to s e n all imported eramodities domestloal3y throng Japanese trading firms. In April, 19h7) four public corporations were formed to handle all the domestic export and import business; they retraced the large number of private trading firms who had previously handled it. The four public corporations were put in charge of textiles, foodstuffs, mineral and industzial products, and raw materials. In July, 19U7, the SGAP issued a special memorandum to the Japanese government ordering the break-up of the two leading Zaibatsu trading companies, KLtsui Bussan and Mitsubishi Shooji, idiich handled nearly 80 per cent of all Japanese foreign trade in the prewar years. This program contributed temporarily to some disorganisation of trade and industry. However, in the face of the increasing communist strength in the Far East, the Dhited States government decided in 19k7 to speed up the economic reconstruction of Japan. American econ<»dc aid to Japan in 19k7 was more than doubled compared with the previous year. The first American economic aid granted under GAHIQA included food, medical supplies, fertilizer, and the like, but not industrial raw materials. To increase the rate of the economic recovery of Japan, the Occupied Japan Export-Import Revolving Fund was established in August, 19U7, permitting Japan to import Industrial raw materials from the Ihiited States. Japan would then, presumably, process these materials and export the finished products in order to earn foreign exchange idiich was partly to be repaid to the Fund and partly to be HI used to buy more necessazy goods abroad. The Fund was estaKUahed mlth a collateral of $70 million worth of cotton fabrics under processing in Japan, and also $137 million worth of precious metals owned by the Japanese government and in the custody of the Occupation authorities as war reparation. maximum credit given to Japan was set at $680 million and the credit which Japan used had to be repaid 1 within one year. Furthermore, the Ihited States Congress provided in 19U8 the EROA (Economic Rehabilitation of Occupied Areas) Fund. This enabled Japan to import both raw materials such as iron ore, coal, or cotton, and also producer-goods. Since die Japanese econongr was so inflaticmazy in the immediate postwar years, the Ihiited States government in December, 19^8, issued to the Japanese government a nine-point program to achieve economic stabilization. The sixth point of the program called for improvement of the foreign trade regulations and foreign-exdhange- control system of Japan, and also for their stricter enforcement. The seventh point indicated the necessity for maximizing aborts as the most important factor in Japan's economic recovery. Consequently, the trade board was abolished in April, 19U9, and most of its functions were absorbed into the newly established Mnistry of International Trade and Industzy. The two public corporations for foodstuffs and raw materials were abolished at the same time and the other two in March, 19^0. In February, 19U9, a Foreign Exchange Control Board was

"Tîihon Booeki Dokuhon, p. Bl. 312 established by the Japanese government and the handling of foreign exchange transactions vas tamed over to the Board in December, 19h9* However, there was no single, uniformly applicable foreign exchange rate until April, 19l*9, when the conversion rate of Japanese currency was officially fixed at 360 yen to the U. S, dollar. . Previously the trade had been operated on the basis of multiple exchange rates, utilizing two separate funds, a dollar account maintained by the SCAP and a yen account in the hands of the Trade Board. In the yen account, the selling prices of imported comnodities were kept artificially low in order to subsidize consumers and hold prices down while prices paid for export goods were always h i ^ enou^ to cover current costs of production. For instance, cellu­ loid toys were exported at a rate of 500 yen to one dollar and bicycles at a rate of 600 yen to one dollar. On the other hand, cotton ya m s and fabrics were exported at a rate of 1^0 yen to 2$0 yen to one dollar. For imports, as examples, the rate for wheat was set at 165 yen to one dollar, while raw cotton had two rates— 80 yen per dollar for domestic use, and 250 yen for export manufacture.^ Even thou^ the Occupation authorities permitted some Japanese foreign trade to be conducted partially on a private basis between foreign and Japanese trading firms in 19U8, controlled trade under thé direction and supervision of the SCAP continued to be rigidly enforced until December, 19h9. At that time the Foreign

^Ibid., p. 89. 113 Trade Control Act became law and Japanese foreign trade was trans­ ferred to private hands, subject only to the foreign exchange controls. In the Japanese balance of international payments in the 19U6-19U9 period, as presented in Table 20, it is obvious that the current account had a large unfavorable balance of merchandise trade every year. Because of the confusion, re-adjustment, and absolute shortage of commodities in the immediate postwar econoi^jr, it was inevitable that Japanese exports did not exceed imports. Even thou^ Japan's foreign exchange receipts from exports increased from $6$.3 million in 19U6 to $^33.3 million in 19U9, the 19U9- figure was about only half of the corresponding figure in 1936, In real terms, the 19U9 exports were only 16 per cent of the 193U-1936 1 level.

3n contrast, the payments for imports were #303.3 million, #UU9.0 million, #^U6.6 million, and #728.1 million, respectively, in 19U6, 19lt7, 19U8, and 19U9» The value of imports exceeded that of exports evejy year in this period. The excess of imports over exports was made possible only by American economic aid to Japan. Imports in 19U9 amounted to 29 per cent of the prewar level in real terms. There was no payment by Japan for travel abroad in this period, and Japan's receipt from tourists began only in 19U9. Since

^engo Keizalshi, p. 88. g Loc. cit. m

Tablé 20

[In nilUons of dollars)

15li7 W ! ■ k e l p t s F n l s Balance fflti Eeceipts Payments fealanoe Eeceipts P u e n te Wance mmmuamm j 1. 65.3 303.3 .2 3 5 .0 151.6 lil|5.0 -2 6 7 ,It 262.3 516.5 -25lt.3 533.3 725.1 -1 5 U 2. 1.6 1.6 1 .5 1 .5 2.6 2.6 2.5 2.5 7 0 7 9 3. Ui (»6 L 0.5 36,7 .3 6 .2 1.0 55.0 -58.0 3.0 123.2 -120.2 5,It 173.lt -l6lt.O 5. 3.1t ■ 3'lt 2.2 - 2.2 1,3 1.3 6. 15.5 15.5 li5.6 Ii8.6 Î. Othsrs l.lt • l.lt 1.5 - 1.5 J â - 5.0 5ib-toial [Itens 1-1) 1 0 TOTO 5IP # t TO m * 3 5 0 TO m

Unilateral transactions Private gifts and remittance 1,6 1.6 0.lt 0.6 0,6 Qovernment 152.5 152.5 It0lt.lt It0lt.lt It6l.0 It6l.0 531.5 531.5 War renration I6.lt •l5 .lt TO TO lotal of current transactions T O TO TO 5m m m m IP OT

Error and omission - 2.5 13.6 -10.5 Final balance of current transactions 1 0 10 W

MoYewta of capital end roetary gold t o t s liabilitlas Set aaaets Assets liabilities Set assets Assets liabilities Set assets Assets liabilities Set assets

1, PriTate capital (excluiJing financial inatitctiona) kig-teni ' Short-ten 2. Oorerment St financial institutions - 3.6 ■17.5 17.5 long-ten 22.1 '22.lt 5.5 ' 5.5 3.6 221.2 Short-ten !i5.5 105.7 ■55.5 51.6 ■12.1 63,7 123.0 20.3 102.7 Ii5.lt 175.5 US Japan lost more than 80 per cent of her o(Mmoercial fleet during the war, almost all of her foreign trade had to be carried by foreign ships. Nor were Japanese insurance companies allowed to participate in international business. Therefore, Japan’s net payments for these services amounted to as much as $16U million in 19U9. As pointed out before, Japan's net receipt from shipping and insurance exceeded Japan's unfavorable balance in merchandise trade in the prewar period. Further, Japan had lost all of her foreign assets and was receiving no Investment income from aborad. On the other hand, she had to continue to pay out profits and interest on foreign investment in Japan* In short, all those foreign assets which had made Japan a net creditor countzy in the 1930's had been destroyed by the war, and the excess of merchandise imports over exports and the net payment for shipping and other services were making Japan a net debtor country again. Thus, Japan's unfavorable balance in merchandise trade and other service transactions amounted to $272.6 million, $3^8.L million, $386.8 million, and $306.U million, in 19U6, 191*7, 19l*8, and 191*9, respectively. All these unfavorable balances were financed by unilateral American economic aid to Japan, and there was even a favorable balance in the current account every year in the period except in 191*6. The net receipts on current account in 191*9 amounted to as much as $196.2 million.

Turning to movements of capital, there was no private foreign investment activity in this period. Capital movements occurred only in the sectors of government and financial institutions, and these 116 movements were considered mainly as adjustment of the balance on current transactions. Japan's foreign currency holding continued to increase from 19U7 to 19U9 and reached $218.6 million at the end of that year.

The balance of payments In the 19^0's In order to see the over-all picture of Japan's balance-of- payments condition in the 19^0's, the changes in Japan's gold and foreign exchange reserve in this period will be analyzed. The outbreak of the Korean War in June, 1950, brought an export boom to Japan, along with KLlitary Special Procurement of supplies for American and United Nations troops in Korea, Okinawa, and Japan. Japan's foreign exchange reserve increased from $218.6 million at the end of 19U9 to $9lU»6 million at the end of 1951 as indicated in Table 21. Even thou^ the cease-fire arrangement began in July, 1951, and the world market moved into the post-Korean recession, purchases under the Special Procurement of the Ttoited States continued to be increased. Consequently, the foreign exchange reserve increased to

$1 ,1 3 6 .7 million at the end of June, 1952. With this increased foreign exchange reserve the Japanese government encouraged the import of those materials necessary for a modernization of Japanese industries designed to improve their competitive position in the world market. However, while imports increased rapidly exports did not expand, and the foreign exchange reserve dropped to $596.1 million 117 at the end of June, 195U* This was Japan's first balance of payments crisis in the 19^0's. By tightening credit and by other measures explained in the previous chapter, Japan overcame the crisis rather quickly, and she had another period of rapid economic expansion until 19^6. The foreign exchange reserve rose to $9lil«U million at the end of 19^6.

Table 21

Gold and Foreign Exchange Reserve Japan, 19L9-19S9 (In millions of dollars)

Gold and Foreign^*) Tear End Exchange Reserve

19U9 218.6 1950 560.1 1951 911t.6 1952 (June) 1,136.7 1952 (December) 979.2 1953 823.5 195k (June) 596.1 195k (December) 738.1 1955 769.0 1956 9kl.k 1957 52k.6 1958 861.6 1959 1,322.0

^^The gold and foreign exchange reserve covers

1. The balance of payments >2periocl The Japanese economy in the early 1950's was suffering from the dislocation caused by the enforcement of the economic stabiliza­ tion program and the establishment of the official sin^e exchange rate in April, 19h9. The export trade suffered especially heavily, since more than 20 per cent of the goods had been previously exported 119 at an exchange rate of more than the new rate of 360 yen to one dollar and, consequently, firms manufacturing these commodities were tempo­ rarily handicapped. Furthermore, the devaluation of the pound sterling fay one-third in September, 191*9, caused an additional problem for the Japanese export industxy, since the devaluation improved the competitive position of British exports in many markets as compared with the position of Japanese exports. At this crucial time, the SOAP invited a special group of American trade experts to develop a better solution for the expansion of Japanese exports. Their investigation resulted in ccxisiderable relaxation of the controls imposed upon Japanese foreign trade, and the signing of additional bilateral trade agreements between Japan and various other countries. The budget­ ing of foreign exchange for imports was transferred from the SGAF to the Foreign Exchange Control Board of the Japanese government in early 1920. Japanese exports in the first six months of 1920 increased to $272 mi],lion from $221.8 in the previous six-month period. Aice the Korean War broke out, the world market turned to a sellers' market. Japan's foreign exchange receipts from merchandise exports in 1920 increased by 73 per cent over that of the preceeding year while import payments increased by only 22 per cent. As a result, even the merchandise trade attained a favorable balance of $3U*U million in 1920 (see Table 22). 120

Table 22

Japan, W $ 2

(In millions of dollars)

I960 1951 1952 Current transactions Receipts ?'tpents Balance Receipts Payments toance Receipts j^'ayinents Man'ce

1. Merchandise 920.3 885.9 311* 1,353.5 1,61:5.3 -291.7 1,288.6 1 ,701.3 -la2.6 2. Mon-ionetaiy gold 3.7 3.7 U u 5.5 5.5 3. Foreign travel 22.l| 1.9 20.1: 8.9 1:.3 1 5 8.1 1:.9 3.2 L Shipping 9.1 96.5 -87.3 ia.o 255.6 -2Di.6 71.3 223.3 -151.9 i, Insurance 0.7 3.8 - 3.0 3.7 15.6 - 1 1 . 8 5.5 ,15.1: - 9.9 6, Investment income 0.3 5.9 ■5.5 1.0 6.3 - 5.3 6.0 10.9 - 1:.9 7, Government transactions 62.6 0.3 62.3 625.2 2.0 623.2 791.5 5.9 785.5 8, Others 33.9 12.1 21.8 101.1 . j l . 3 1:9.8 15,0 39.6 - 21|.6 Sub-total (Items 1-6] m n p T 5 8 3 p o “TO 9, Unilateral transactions 80.1 U.O 69.1 ■ 26.1 10.3 15.8 là.8 15.7 29.0 Qovemment 360.3 360.3 155.3 ■ 9.2 155.5 5.1: 5.1: War reparation IW 1 7 P 2]20:8 m # 3 w

Error and mission !i9.6 0.7 Final balance of current trai Lons "W 1 3 U Movements of capital and monetary gold Assets Liabilities Net assets Assets Liabilities Net assets Assets Liabilities Net assets.

1, Private capital ( M u d i n g »

Long-term 1.9 6.0 - L l 0.3 2I1.5 - 2 U 0.Ü 16.2 ■ 15.7 Short-term 0.1) 1.6 - 1.2 9.3 19.3 - 9.9 1 2 25.6 -21.1: 2. Qovemmmt St financial institutions Lone-ten capital , 98.1 0.7 97.1: - 2 . 3 ' 2.3 Ü3.1: 36.1: 76.9 Short-term capital 1,1:91.6 1,061.5 1:30.1 356.9 - 8,2 365.1 21:5.9 1:8.1 197.7

3.7 . _____ U LI: 3. Monetary gold 3.7 —— -11.9 — - 1 1 . 9

Total 1,595.7 1,069.8 5 Ü . 9 371.0 33.2 337.7 352.1 126.7 225.1:

Source: Sengo Keizaishi, pp. I|?9-lt82. 121 Japan's receipts from the Special Procurement program are recorded under government transactions In the balance of payments. They amounted to $62.6 million in 19$0. In that year Japan also received a unilateral payment of $360.3 million In American economic aid. Consequently, the final balance on the current account in 19^0 was favorable by as much as $52^.9 million. In the capital account, on the other hand, the movements of both short- and long-term private capital started In 1950, thou^ the amount was negligible. Capital movements by the government and financial Institutions were regarded as an adjustment for the balance on the current account. It should be noted here that the rather substantial sums shown as assets and liabilities under the short-term capital In Table 22 reflect the technique of recording Japan's foreign trade balances with those countries with which she had bilateral trade agreements under the open account settlement system. In 1951 Japan's payments for merchandise imports increased by as much as 86 per cent over those of the previous year while the export receipts Increased by k7 per cent. Hence, there was an unfavorable balance of $291.7 million In the merchandise trade. Furthermore, as the volume of foreign trade Increased, Japan's net payments for shipping and insurance also increased, amounting to $226.U million in 1951. However, to cover these unfavorable balances Japan received more than $600 million from the Special Procurement

^!he settlement of the trade balance between two countries, la made only, at the end of a certain period without any immediate payment for each Individual transaction. 122 Fund, and additional American economic aid of #155*3 million. Thus, there was a net receipt of #337*7 million on the current account in

1951. The effect of the post-Korean War recession on Japanese exports became clear in the balance of payments for 1952. Japan’s receipts from merchandise exports in 1952 were less than those of 1951) and there was a net payment of #kl2.6 million in the merchandise trade only. % t h the signing of the Peace Treaty in 1952 Japan reemerged as an independent nation and American economic aid to Japan was generally stopped. On the other hand, however, the Special Procure­ ment continued to increase even after the cease-fire in Korea, and Japan received nearly #600 million from it in 1952. Therefore, in

1952 Japan managed to have a favorable balance of #225.U million on the current account. Japan's foreign exchange reserve increased rou^ly by #700 million within the three-year period, 1950-1952. 2. The balance of payments in the l953-195^^riôc[ Because of the worldwide recession after the cease-fire in Korea the total value of world exports in 1952 and 1953 remained below the 1951 level* Under these circumstances Japan's receipts from merchandise exports in 1953 were also smaller than those of the previous year. However, since tiie prices of imported commodities had also declined considerably and Japan had an increased foreign exchange reserve, the government encouraged import of materials necessary 123 Table 23

Japan, 1553-1556 [In millions of dollars)

1553 1558 1555 1556 Current transactions leceipts t*ajBmts Balance Heceipts Payments

1. Merchandise 1,257.8 2,Olt5.6 ■751.8 1,611.2 2,080.5 ■1|25.2 2,M6.1; 2,060.8 ■ 5 W 2,118.8 2,612.8 •IH.O 2. NMnetaiygold 2.3 2.3 2.6 2.6 I.5 ■ 1.5 O.li 0.1 3. Foreign travel 5.5 6.5 2.5 11.2 6.7 Ü II.2 , 8.0 6.2 16.5 12.3 I1.2 i Sbipging 76.6 2I16.5 -170.3 85.7 255,8 •166.1 127.3 276.0 205.8 513.0 -303.2 12.0 2li.8 12.8 5. Insurance 1 8 17.7 • 12.8 8.8 . 15.5 • ll.li 6. investment income 11.7 38.5 - 23.1 8.2 87.0 •36.7 27.3 66.1 • 38.8 7, Government transactions 810.8 8.7 802.0 618.1 11.1 523.7 13.2 15.1 50lt.6 8. Others 17.7 53.1 - 35.8 25.7 70.7. 'W 22.0 82.2 • 60,2 12.2 Ull.7 -82.5 8ub-total (Items 1-b) w W w 2)W O T W m n o 5. MLateral transactions Private gifts and remittance 23.0 2.0 21.0 32.0 2.6 25.3 33.0 2.3 30.6 311.2 1.3 32.5 Government 0.1 • 0.1 12.6 12.6 12.3 12.3 War reparation 21,7 -21.7 15.8 -15.8 Total of current transactions [,215.1 V w w W W w m m 12.7 -15.3 11.1 F M balance of carrent transactions ^ n o w , nrs

Horeiients of capital and monetary gold Assets Liabilities Met assets Assets Liabilities Met assets Assets liabilities Met assets Assets liabilities Met assets

1. m v a t e capital t e x o M _ financial institutions) 0,6 20.0 . 15.1 2.8 25.2 • 22.7 5.6 18.5 • 8.8 27.1 75.3 - 88.2 Short-tera 111 -35.? 37.2 31.5 22.7 5.2 11.7 88.1 - 76.3 118.6 68.0 50.6 2. Gorement & financial institutions long-tem capital 185.1 32.0 157.1 26.5 • 26.5 -7.2 7.2 2.8 28.1 ■ 25.7 Short-tem capital 3.5 3l.l| -368.0 37.5 38.3 • 0.8 305,5 22.2 2 % j 172.0 171.8 0.2

3. 2.3 2.3 2.6 2.6 0.8 0.8 M a i 71 ~W W -m IE] w W i n

Source: Sengo Meimaishi, pp, |8l

$3 6 1 .1 million in the merchandise trade in 1959. Moreover, Japan received nearly $U00 million from the Special Procurement in 1959. The current account produced a net favorable balance of $1*18.5 12? Table ^

Japan, 19$?.19g? (In millions of dollars)

195? IKI 1959 Current transactions Receipts Payments Balance Receipts Payments Balance Receipts Payments Balance 1. Merchandise 2,8510 3,256.1; 402.1( 2,870.8 2,501.8 369.8 3,813.3 3,052.2 361.1 2. üoMonetaïy gold 0.5 0.5 0.5 0.5 0.5 0.5 3. Foreign travel 21.8 11(.5 7.3 28.3 15.9 8.8 32.6 20.1 12.5 L Shipping 260.6 761.9 -501.3 21(0.1 806.0 -165.9 288.0 866.6 -178.6 5. Insurance 16.8 3l(.0 -17.2 22.2 32.1 - 9.9 28.2 39.8 - 15.2 6i investment income 33.9 82.1; -1(8.7 27.1 66.9 -39.8 87.8 85.1 - 37.3 ?. Government transactions 1(85.5 19.6 1(65.6 1(26.5 23.7 802.8 392.6 27.8 365.5 8. Others 11(0.7 - 9 U 51.8 157.7 -105.9 57.0 180.8 -123.8 3,T O E,3^9.5 WTTO ETO TO 188-3 9. bilateral transactions Private gifts and reÉttance 36.9 1.5 35.1; 1(1.1 1.8 39.3 89.5 2.1 87.8 Government 10,5 10.5 10.2 180.3 -170.2 0.3 0.6 - 0.3 War reparation 68.3 - 68.3 70.1 - 70.1 IX w J i f 3,711(.5 IX '26878 8 T O 5,988.5 TO Error and omission 1.2 36.5 57.2 ms X TO TO Assets [labilities Net assets Assets Liabilities Net Assets Assets liabilities fet assets 1. Pjivate capital (excluding financial institutions) Long-term 3l(.l( 60.6 -26.2 28.9 83.6 • 58.6 118.6 96.7 21.9 Short-ten 33.6 91.0 -57.1; 12.1 - 10.5 22.6 6.8 -53.6 60.8 2. Government & financial institutions Long-term capital 0.1 32.2 -32.2 1.1 57.2 -56.1 269.2 76.8 192.8 Short-ten capital 472.8 30.8 -503.6 186.1 -176.5 362.6 380.0 356.8 23.6 3. 120.2 120.2 lotal u î ë 5 T O TO T 9 P E753 TO

Source: Sengo Keizaishi. pp. 128 million in 1959> and the foreign exchange reserve Increased by $1|58 million within the year.

Summaiy Japan had an unfavorable balance in the merchandise trade through almost all the period from 1868 to the Second World War. Until 19lU the unfavorable balance on the current account was covered by a continuous Increase in its foreign debt. However, the so-called "invisible" trade on the current account, such as shipping and insurance services, was favorable from 191$ on. The total favortüsle balance in this trade amounted to $U*U6 billion yen for the 190U-1936 period and exceeded the total adverse balance in the merchandise trade in the sane period by $U00 million yen. Japan earned most of this by its merchant marine operation. The par value of the yen was fixed in 1897 at U9.8$ cents to one U. S, dollar. By 1933 the foreign exchange rate of the yen dropped to as low as 2$ cents. Such devaluation of the yen aggravated Japan's import problem, but it was one of the major factors responsi­ ble for the rapid expansion of Japanese exports in the prewar period. Except for a short period immediately after the first World War, Japan had been a net debtor country until the early 1930's. By that time, however, Japan's foreign investment— mostly in Manchuria and China— had matured sufficiently to provide a net receipt of investment income, thereby making Japan a net creditor country. World War II changed radically Japan's situation in inter­ national trade and finance. Immediately after the war all Japanese 129 transactions were placed under strict control of the Occupation aulAorities. Because of extreme shortage of commodities in the immediate postwar econon^ÿ the value of merchandise imports exceeded that of exports every year in this period, and the unfavorable balance was covered only by American economic aid to Japan. In 19U9 the official foreign exchange rate was fixed at 360 yen to one U. S. dollar, and Japan's international transactions were returned to the control of the Japanese government in 19$0. The outbreak of the korean War increased the demand for Japanese goods and services by the U. S. Special Procurement Program, which replaced American economic aid to Japan. In the decade of the 19^0's Japan's merchandise trade had a net payment of $1,7UB million. Only three years out of the ten had a favorable balance in the account. And in the shipping and insurance accounts Japan continued to have net payments throughout the decade, and the total deficits amounted to $2,200 million, some $U^0 million more than the deficit in the merchandise trade. However, *^apan's net receipts in the government transaction account— mostly payments from the Special Procurement program- totaled $9,129 million in the ten-year period, and this covered the large deficits boiJi in the merchandise trade and in the shipping and insurance accounts. Japan met two balance-of-payments crises in the 1990's, and had a favorable balance on the current account for six years out of the ten in this period. The total net receipts on the current account 130 amounted to $1,132 Bd.13.lon and Japan's foreign exchange reserve increased by approsdmately one billion dollars in the 1950's« ]h the following Idiree chapters a more detailed analysis of the major items in the balance of payments will be presented. CHàPTER FITE

AN ANAI38IS Œ THE NàJQR ITEMS IN THE JAPANESE BALANCE QP PAIMENIS IN THE 1950'S: MERCHANDISE TRADE

Since the nerdiandise trade vas the most important item in the Japanese balance of payments in the 1950's^ it vill be treated first in the analysis of the major items in the Japanese balance of payments in the 1950's. The statistical data used have been taken from customs office records since they shov geographical grouping and the nature of exports and imports, and they afford the possibility of a more complete analysis than could be made from foreign exchange statistics alone.

Comparison of prewar and postwar Japanese trade As seen in Table 25, Japan had an unfavorable balance in the merchandise trade every year in the 1950's. And though the value of both exports and imports in 1959 was nearly four times that of the 193U-1936 average, the volume of the 1959 exports was only 17 per cent higher than the 193U-1936 level, while the volume of the 1959 imports increased by U8 per cent over the prewar level. Thou^ the volume of Japanese trade has grown over that of the prewar period, the volume of world trade has in the meantime

131 332 donùedÿ and Japan's share of world trade has been consequently reduced. Japan's share of world exports in 1938 was per cent, making her the fourth largest exporter In the world, following the United States, the United Eingdon, and Germany. In 19^9, however, Japan's share of world exports was only 3.U per cent.

Table 2$ Value of Japanese Merchandise Trade and the Quantity Index, 193U-1936 and 191*9-1959 Value in millions of dollars Quantity index. 1953-100 Year Export Import Balance Export Import 193U-36 average 928 - 23 21*3.0 120.9 19U9 510 905 -395 37.1 3l*.0 1950 820 971* -151* 78.1 1*5.0 1951 1,355 2,01*7 -692 87.1 66.6 1952 1,273 2,02 8 -755 92.1* 73.6 1953 1,275 2,1*10 -1,135 100.0 100.0 195U 1,629 2,399 -770 133.3 1 0 3 .6 1955 2,011 2,1*71 -1*61 17l*.l 108.9 1956 2,501 3,230 -729 207.9 138.3 1957 2,8$8 1*,281* -1,1*26: 231.5 172.1* 1958 2,877 3,033 -156 239.9 11*1.8 1959 3,1*57 3,600 -11*3 281*. 9 178.9

Customs office records of Japanese government. Source: Nihon Booeki Dokuhon, p. 126.

At first glance, such a condition would seen inconsistent with the extremely high growth rate of Japanese exports, idiose value increased in the 19^0's at an average annual rate of 23.1 per cent, about lAree times as high as that of world exports. In the same period, the volume of Japanese exports increased at an average annual rate of 16.7 per cent while that of world exports increased at 6.$ 1 3 3 per cent. It should be remembered, however, that Japanese trade was so reduced in the immediate postwar period that small numerical increases were reflected in high percentages, and the volume of exports reached the 1931&-1936 level only in 19$9» Nor has Japan's share of world imports reached the prewar level (U>6 per cent in

1938 as against 3.U per cent in 1999), thou^ import volume equaled that of the prewar period in 19^6. The internal rate of economic redovezy, however, has been much faster. The real gross national product reached the 193U-1936 level in 19^» the same year in which industrial production topped the prewar level. % t h such slower recovery of Japan's foreign trade as compared with the internal rate of econoslo recovery it would be expected to find that Japan is less dependent on foreign trade for its economic growth than it was in the prewar period. And this is indeed the case, as may be seen by an examination of the relationship between the gross national product and the value of foreign trade. According to national income statistics, the value of exports was about 20 per cent of the gross national product in the

I93U-1936 period. The corresponding ratio in 1999 was only 10.2

per cent. The value of imports was also about 20 per dent of the gross national product in the 193U-1936 period, idiile the ratio for 1999 was only 9.1 per cent.^ The average ratio between the value of exports and the gross national product in the 1990's was 13 per cent, while the ratio in

^Kokumin Sfaotoku Hakusho I960, pp. 176-177. 33U the 1930*8 vas 2U per cent. The average ratio betveen the value of inports and the gross national product in the 1950*s vas 12 per cent, as compared with 22 per cent for the 1930*s. On the other hand, the average annual rate of economic growth in terms of the real gross national product vas per cent for the 1950's, while the rate for ■» the 1930's was 5.3 per cent. Thou^ exports still play a very important role in her economic expansion, Japan in the 1950's succeeded in sustaining a higher rate of economic growth with a lower ratio of exports to the gross national product. And though Japan still must depend to a great degree on imported raw materials, the ratio between the value of these imports and the gross national product has also declined considerably from the rate for the 1930's. In short, the economic record of Japan in the 1950's indicates that a higher level of economic activity was maintained with a relatively lower level of foreign trade than in the prewar period. One of the major causes for this may be found in the changing pattern of the commodity composition of the merchandise trade, the details of which will be discussed in the following section.

Commodity composition of Japanese foreign trade The composition of Japanese exports has changed quite significantly in the postwar period as compared with that of the prewar exports. As seen in Table 26, finished and semi-finished

^ i d . , pp. 176-177 and I 8O-I8I. J3$ manufactures comprised 90 per cent of the total value of Japanese exports in 19$9, as against 81 per cent in the 193U-1936 period. However, the share of semi-finished products in 19$9 was less than that of the 193U-1936 period, and the finished cmponent increased from $7.6 per cent in the prewar period to 72.2 per cent in 19$9>

Table 26 Percentage Distribution of Japanese Exports by Commodilqr, 193U-1936 and 19$0-1959 Food- Haw Semi-finished Finished Year stuffs Materials Manufactures Manufactures Others Total

193U-36 9.U 5.2 23.3 $ 7.6 2.5 100.0 19$0 6.3 2.9 2$.6 6U.U 0,8 100.0 19$1 5.1 2.8 29.U 60.8 1.9 100.0 19^2 7.8 3.0 35.0 52.5 1.7 100.0 1953 10.$ 3.3 2$.0 60.u 0.8 100.0 195U 8.U 2.9 27.6 60.9 0.2 100.0 1955 6.9 3.2 30.9 $8.6 o.U 100.0 1956 7.0 U.O 20.$ 68.1 o.U 100.0 1957 6.3 3.2 19.3 70.8 O.U 100.0 1958 8.0 2.8 20.0 68.8 O.U 100.0 1959 7.3 3.3 16.8 72.2 O.U 100.0

/ Source: Keizai Yooran 1962, pp. 178-179.

Textiles, while still a major item in the Japanese export pattern, had a less predominant role in the 19$0's than formerly.

In the I93U-I936 period, textiles comprised $2 per cent of the total value of Japanese exports; by 19$9 they had dropped to 30 per cent On the other hand, metal products have become increasingly important in Japanese exports. The share of metal products including ships 136 and machinery rose from 1^.1* per cent of the total cohort value in the

I93U-I936 period to 37.2 per cent in 1959.^ This shift in commodity exports reflects both Japanese industrial development and the changing pattern of world trade, in which the share of Industrial products, particularly those of the heavy and chemical industries, have been growing at the expense of raw materials and foodstuffs, as seen in Table 27.

Table 27. Percentage Distribution of Exports by Commodilqr, Major Industrial Nations, Selected Tears 1928-19^9

Commodity 1928 1938 3 ^ Foodstuffs 1 3 .0 lU.o 11.9 Raw materials 23.2 2 0 .5 16.8 15.0 Light industry 3 1 .8 2^.5 19.9 18.9 Textiles 18.0 12.1 9.3 7.6 Others 1 3 .8 12.U 10.6 11.3 Heavy & chemical industry 28.3 UO.l U7.6 $3.2 Chemicals U.2 6.0 7.1 8.7 Machinery 13.^ 20.^ 26.0 31.7 Other metal products 10,6 1 3 .6 12.$ 12.8 Other 1.2 0.9 1.7 1.0 Total exports 100.0 100.0 100.0 100.0

'The major industrial nations are ten countries: Belgium, Canada, Prance, Germany, Japan, Italy, Switzerland, Sweden, bhited B ^ d o m , and United States for 1928 and 1938; eleven countries with Ketherland added for 19^3 and 19^9. Source : Tsushoo Hala^o 1961 (Annual Report of International Trade l96l), Tokyo: Tsushoo- Sangyoshoo, 1961, p. 283.

%ihon Booeki Dokuhon, p, 128. 337 WLth reference to the shift toward heavy and eheaical industries, however, Japan remains behind the other leading industrial nations. In 2S$9f for example, the products of the heavy and (diemical industries amounted to only U2 par cent of Japanese exports; this figure may be compared with West Germany (73.8 per cent), the United Kingdom (66.1 per cent), and the %ited States (U9*7 per cent). This growth in the exports of heavy and chemical manufactures has been paced by a relative decline in the share of light industxy; textiles, for example, which amounted to 12 per cent of the total world exports in 1938, dropped to 7.6 per cent in 19$9. Some changes in the Japanese pattern of exports, thmi, may be considered more as the consequence of world economic development than of any conscious Japanese design. According to the quantity index of exports, the volume of textile exports in 19$9 was 30 per cent less than that of the 193U“1936 average, as would be expected from world figures. The 1959 volume of machinery exports, on the

other hand, was more than three times as large ats that of the prewar period, as shown in Table 28. Both the Japanese government and Japanese businessmen are quite aware, however, of the advantages of adjusting the composition of Japanese exports to the changing trend in the world demand. There has been considerable diversification of Japanese exports in recent years, and this trend is expected to continue. The results of this diversification and the shift into the heavy and chemical industèies

^susho Hakusdio 1961, pp. 292-293» 138 are alreadly reflected In the export figures. The ten leading Japanese exports in 19$9 are shown in Table 29.

Table 28 Quantity Index of Japanese Exports by Oomnocàty, Selected Tears 19314-1959 (1953-100)

Commodity 193U-36 1950 2 ^ 1959 General 2U3.0 78.1 17U.1 28U.9 Food & beverages 235.2 39.6 105.2 197.9 Textiles 351.5 100.3 179.0 2UU.3 Machinery 101.8 50.7 357.2 368.2 Metals & metal goods U 6 . 8 112.8 226.U 235.2 Drugs Sc. chemicals 186.7 33*8 162.2 UUl.7

Source: Keizai Tooran 1962, pp. 196-197.

Table 29 Value of Ten leading Commodities Exported from Japan and t h ^ r Ratios to Total Exports ^ 1959 Item Value in million dollars Ratios Ships 358 lO.liJÈ Cotton Fabrics 291 8.1* iron and steel 253 7.3 Clothing 207 6.0 Marine products 179 5.2 Metal products 121 3*5 Rayon fabrics 111 3.2 Radio sets 107 3*1 Toys 77 2.2 Elywood 76 2.2

Source: Keizai Yooran 1962< pp. 188-189. 139 According to a studjr made by the Economics Planning Agency of the Japanese government, the net foreign currency earning ratio of Japanese eoqports has been constantly rising. In its export of ships, for example, only 1$ per cent of the total export value was spent on isq>6rting the necessary raw materials, leaving 8$ per cent as net foreign currency gain. The corresponding gain in cotton fabrics was only 68.U per cent in 1959* The average ratio for all export industries has been rising steadily, from 78.8 per cent in 1955 to 8U.3 per cent in 1959.^ This may indicate at least partly that Japan has been recently increasing export of commodities wfaidi require relatively less foreign raw materials and also commodities with high value added by labor. And this is one of the reasons why Japan achieved higher rate of economic growth in the 1950's with less dependence on exports than in the prewar years. If the commodity composition of Japanese imports is examined in terms of dollar value, the share of such textile raw materials as cotton and wool, has declined considerably in recent years, reflect­ ing the increasing use of synthetic fibers and the relative decline in the importancb of textile exports. In the 193L-1936 period the share of fabric raw materials amounted to 31.8 per cent of the total

^The ratio of individual commodity is obtained by dividing the difference of the total value of an export item and the total value of the Imported materi.als necessary for the product by the former. The ratio of commodity group and of a U the exports is obtained by compu­ ting the weighted average of individual ratios, using export value of individual items as wei^t.

^Keizai Yooran 1962, pp. 200-201, lUo inports. Bat it had dropped to 18.2 per cent Iqr 19$9> Cm the other hand, the import of mineral fnels increased from 7.0 per cent of the total imports in the 193L-1936 period to 13*5 per cent in 1959. The import of machinery also rose from U.7 per cent to 9.8 per cent (see Table 30).

Table 30 Percentage Distribution of Japanese Imports by Commodity, Selected Tears 193U-1959

Commodity 193U-36 1955 1959 Foodstuffs 23.3 25.2 25.3 13.8 Fabric raw materials 31.8 39.2 2U.3 18.2 Mdneral fuels 7.0 8.0 U .7 15.5 Drugs & chemicals L l 2.5 U.6 6.1 Machinery U.7 2.9 5.U 9.8 Mineral ores & scraps U.O U.7 7.5 13.8 Others 2 5 .1 17.5 21.2 22.8 Total 100.0 100.0 100.0 100.0

Source: Tsushoo Hakusho I960, p. 613.

According to the quantity index of imports, as shown in Table 31, the volume of textile imports in 1959 was less than that of the I93L-I936 average, while the amount of foodstuffs imported in 1959 was only slightly more than in the prewar period. On the other hand, the imports of mineral fuels, mineral ores, raw rubber, machinery, and the like in 1959 rose considerably, reflecting the development of the heavy and chemical industries. lia Table 31 Quantity Index of Japanese Imports by Commodity, Selected Tears 153U-1959 (1953-100)

Commodity 193U-36 1951 3 ^ General 120.0 66.8 108.9 178.9 Food & beverages 106.1 77.3 116.6 107.1 Textiles 1145.0 72.U 88.4 123.2 Mineral fuels 66.5 50.9 106.5 220.1 Raw rubber 66.6 105.9 241.7 Metal ores lOO.U 5U.1 111.6 273.0 Machinery 103.9 Ui.9 92.7 222.6 Drugs & choBioals 88.9 U9.U 146.0 315.6

Source: Tsnshoo Hakusho I960, pp. 632-633.

As pointed out already, the ratio between the value of imports and the gross national product in the 1950*s was much lower than that of the 1930's. Some of the reasons for the lower ratio in the 1950*s are as follows: 1. The Japanese economy has been shifting from one oriented toward li^t industty with greater dependence on raw materials from abroad to an econony oriented toward heavy and chemical industri.'cs with a lesser degree of dependence on foreign raw materials. 2. Raw materials such as wood pulp, ammonium sulfate, and pig iron, which had been previously imported are now being produced in Japan. 3. Greater use of domestic resources is being made for sudi materials as iron ore and coal. U. Because of the continuous decline in the external value of Japanese currency in the 1930's, yen prices of imported commodities were rising. On the other hand, because of a stable foreign exchange rate of Japanese currency to dollar and the price trend of commodities in the world market IhZ during the 1 9 5 0 ' yen prices of imported commodities, particnlarly those of va» materials -and foodstuffs, have been declining. Japan's ten leading import commodities in 1959 are shown in Table 32.

Table 32 Values of Ten Leading Commodities Imported and their Ratios to Total Imports, Japan, 1959 Item Value in million dollars Ratios Petroleum U60 12.6* Raw cotton 355 9.9 Wool 212 5.9 Scrap iron 20k 5.7 Wheat 161 U.5 Iron ore 1U6 U .l lumber 135 3.8 Monferrous ore 107 3.0 Raw rubber 98 2,7 Soy beans 96 2.7

Source ; Keizal Yooran 1962, pp. 190-191.

Qeographical pattern of Japanese foreign trade Geographically, the pattern of Japanese foreign trade has changed drastically. The most significant change in its dlstributicm since the war seems to be the relative decline in the importance of East Asia and the rise of the United States. As shown in Table 33, in the 1931&-1936 period 6U per cent of the total eoqports went to Asian countries and only 17 per cent to the United States. In 1959, however, the Asian share of Japanese exports was 3U per cent while the TMited States absorbed 36 per cent. Perhaps the most notable Ili3 change is in trade with mainland China, which absorbed l6 per cent of Japanese exports in the prewar period but was negligible in JS$9 amounting to only $3.6 million.

Table 33 Percentage Distribution of Japanese Trade by Region, 193U-1536 and 1959 Exports Imports Region ISS Asia 6ia 3WK, $3^ 33^ Mainland China 18 10 1 Southeast Asia 18 22 16 16 Europe 8 11 10 10 Horth America 17 36 25 ho Halted States 16 30 2h 31 Latin America 2 U 2 3 Africa 6 12 3 h Oceania - 3 7 10 Total 100 100 100 100

U)csOy $3.6 million. Source: Hihon Booetd. Dokuhon, p. 127.

To compensate, in part, for the loss of the China trade, Japan has been trying to expand its trade with South and Southeast Asia. In the 193L-1936 period, 18 per cent of the total exports went to Southeast Asia, but in 1959, 22 per cent of the total was accounted for by Japan's exports to that region, which was second only to the Dnited States as an export market. However, Japan's trade expansion with this region has not been as extensive as the Japanese hoped. For the very, low per capita income in most of the countries of this region, severely limits their capacity to buy liiU Imported goods. Further, the decline in world prices of raw materials has cut the income of most of these countries in recent years. There has also been a very keen competition for exports between Japan and European countries, such as the IJhited Kingdom and West Germany. And from time to time Communist China has dumped consumer goods in the region at prices far below Japanese quotations. Japan also increased its exports to the African, European, and Latin American markets in the 1950's. Africa absorbed 12 per cent of the total exports in 1959 and an annual average of 1U.6 per cent in the 1957-1959 period, as against 6 per cent in the prewar period. This increase, however, was primarily due to the purchase of vessels by shipowners registering under the Liberian flag. By 1957 ships had become Japan's largest emport item, and sales averaged about $3U0 million annually over the 1957-1959 period. Three-fourths of this tonnage was purchased for Liberian flag owners. Europe absorbed between 9 and 11 per cent of Japanese exports over the decade of the 1950's, as compared with 8 per cent in the 193U-1936 period. But the formation of the two trading blocs in Europe— the Common Market and the European Free Trade Area— may mean Increasing discrimination against Japanese commodities in the future. Japanese exports to Latin American countries in 1959 rose to U per cent of the total exports, averaging only 2 per cent in the

I93U-I936 period. Japan has been meeting competition f r w the United States and European countries in Latin America, but she will

^Japan: A Decade of Growth, p. U5« probably increase her export share to this region. The ten leading countries importing Japanese commodities in 19^9 are shown in Table 3U.

Table 3U Values of Japanese Exports to Ten Leading Countries and their Ratios to Total Exports* 1959

Country Value in million dollars Ratios United States 1 ,030.6 29.8* Liberia 209.5 6.0. Hongkong 129.2 3.7 Canada nu.3 3.3 Philippines 109.9 3.2 Thailand IO3.U 3.0 Ihiited Kingdom IO3.U 3.0 Formosa 86.8 2.5 Australia 78.3 2.3 Okinawa 76.U 2.2

Source: . Keizai Yooran 1962* pp. I8 O-I83.

Markets for Japanese exports can be divided roughly into two kinds of areas* advanced i^ustriai nations and underdeveloped countries. Included in the advanced market are Horth America* Europe* and Oceania* %Aile Asia* Africa* and Latin America comprise the underdeveloped market. In the 193U-1936 period 72 per cent of Japanese exports went to the underdeveloped market and only 28 per cent to the industrialized countries. In 1959* however* . Japanese exports were equally distributed in the two kinds of markets. If Japanese ^ i p exports to Liberia are considered to be part of the exports to the industrialized market* Japan exported more to the advanced countries than to the underdeveloped areas. Ili6

On the whole, Japanese export Iteiu for advanced nations are labor-intensive, and export itéras for the underdeveloped areas are capital-intensive oommodities. For example, Japan exports to the advanced countries such items as ships, silk textiles, cameras, toys, cultured pearls, plywoods, and transistor radios. These are mostly labor-intensive products thou^ they may require a h i ^ degree of skill. On the other hand, Japan exports to the underdeveloped areas such items as rolling stock, chemical fertilizer, cement, artificial fibers, and aluminum, idiich are mostly capital-intensive products. On the import side, the Asian share of Japanese imports declined from 53 per cent in the 193U-1936 period to 33 per cent in 1959. The IMted States' share, on the other hand, rose from 25 per cent to 31 per cent. In recent years Japan has been increasing its imports from Oceania, and its share of Japanese imports rose from 7 per cent in the 193U-1936 period to 10 per cent in 1959. The ten leading countries exporting to Japan in 1959 are shown in Table 35»

Japan's trade with Communist China and ■ In the fall of 191*8 the United States initiated bilateral discussions with its major European allies tdiich led to the establish­ ment in January, 1950, of an informal international organization, the so-called Consultative Group and its Coordinating Committee (COCOH) for the purpose of controling exports of strategic materials to the 1U7. coBBimist oonntries» The committee in t n m drew up a lieb of I te m not to be exported.

Table 35 Values of Japanese Imports from Ten Leading Countries and their Ratios to Total Imports, 1959 Country Value in million dollars Ratios Ihiited States 1,112.9 30.95S Australia 292.0 8.1. Malaysia 1 6 6 .3 U»6 Canada 1 5 3 .6 U.3 Philippines 13U.U 3.7 Saudi Arabia 127.0 3 .5 Mexico 1 2 3 .1 3.U West Germany 1 0 3 .6 2.9 IMted Kingdon 103.5 2.9 India 9 2 .3 2.6

Source: Keizai Yooran 1962, pp. I80 -183 .

A complete embargo against Communist China was applied at the time of its Intervention in the Korean War. Simultaneously with Japan*s accession to the Consultative Group in September, 1952, a China Committee (CHINCOM) was also created to serve as a forum for discussion of securUy trade control problems relating to Communist 2 China. The CHINCOM embargo list was much more extensive and stringent than the COCQM list, thou^ it was gradually lightened over the years between 19^2 and 1956. In July, 1957 , 272 previously

^Japan's Postwar Economy, P» 173. ^Loc. cit. 1U8 banned, items were removed from the CHINOOM list, and now Communist China is treated the same way as other oomnranist countries. The COCOM list contains (i960) 222 items not be be exported, 2$ items idiose sale is permitted only in limited quantity, and 6$ itmns whose future status depends on the use to idiich they are put.^ Japan's trade with the communist bloc was rather negligible in the 19^0's. Among communist countries. Communist China provided Japan with the largest market until 19^8, but since then the USSR has been a more important trade partner of Japan.^ The ^Peoples' Republic of China" was formed in October, 19U9, and Japanese trade with Communist China was formally authorized by the U. S. Occupation authorities in March, 19^0. Japan's exports to Communist China in 1990 amounted to 2.U per cent of her total exports idiile China's share of Japanese Imports was i*.l per cent. However, trade expansion was checked by the imposition of the lAoited Mations embargo on the shipment of many types of goods to China as a result

%ihon Booeki Dokuhon, p. 129. ^sushoo Hakusho 1963, pp. 3L0-3Ü1. The Share of the Communist Bloc in Japanese Trade 1990 1991 1992 1993 199U 1999 1996 1997 1998 1999 Exports 7 M -53 “(53 “33 “33 “T7 “T7T “53 “T3 Imports U.liSf 1.2 0.8 1.6 2.0 3.6 3.2 2.6 2.8 2.9 Value of Japanese Trade with Communist China and USSR (in million dollars) _ Exports_____ Imports "1^ “19^ 1950 . 1% 3 ^ Communist China l5.63 19.lb 9.69 99.29 U0.t7 18.78 USSR 0.1*1 O.OU 23.03 0.7U 2.29 39.38 1U9 of its intervention in the Korean War. The low point vaa reached in 3S$2 when Japanese exports to Communist China fell to a mere $600,000 and represented less than 1 par cent of Japan's total exports. In August, 19^2, an understanding was reached between Japan and the %ited States authorizing export to China of four categories of goods: textiles, machinery, paper, and c^stuffs. Japanese exports Increased to $60 million in 1957 while Japanese imports from China rose to $80 million. But the hope of the Japanese government for a further increase in trade with Communist China within the limits of the COCOH list was dashed when, in April, 1958, Communist China suspended all direct trade with Japan, following Japan's refusal to permit the Communist Chinese flag to fly over the China's Trade Mission, Japan's exports to China fell to $3.6 million in 1959. Major Japanese exports to Communist China in 1957 were chemical fertilizer ($13.9 million), steel ($12.1 million), and machinery ($7.6 million). Major imports from Communist China were soy beans ($23.7 million), coal ($7.1 million), and salt ($5.7 million.^ China's great need for chemical fertilizer, machinery, and industrial equipment of all types has forced her to import these commodities from abroad, particularly from Western Europe. But as these European countries have little need for the goods that China can export, the balance of trade has always been unfavorable to the Chinese. Thus, China's imports from the members of the European

^Keizai Yooran 1962, pp. 181* and 186. 050 Eoonoolc Community amounted to $303.6 million in 19^8 and $259.9 million in 1959, ubile her eacports to those countries amounted to only $106.2 million in 1958 and $126.5 million in 1959.^ Under these conditicms, Japan seems a more natural trading partner for China than Europe does, since Japan can provide an outlet for Chinese exports besides the close geographical condition between the two countries. Japan has always been anxious to buy soy beans, oilseeds, ooal, and iron ore from Communist China, since Chinese prices on these oommodities are lower than those Japan has been . paying for similar products from other countries. And Japan can in turn provide the goods that China needs. Despite the obvious advantages, however, the opening of full economic relations with Communist China has been a matter of controversy in Japan which can (mly be satisfactorily settled if it proves possible to separate political and ideological questions from economic transactions. The development of Japan's trade with the Soviet Thiion in the 1950's was much slower than that of the trade between Japan and Communist China. Official diplomatic relations were reestablished between Japan and the Soviet Union in December, 1956, and the Trade and Marine Treaty and the Trade Agreement were concluded in December, 1957. Up to this time, trade between the two countries had been conducted under a barter system and the amount had been very negligible. The treaties, however, provided that the two countries were to give each other most-favored-nation treatment, and the

^sushoo Hakusho I960, p. L72. 2 $ l balance of trade vaa to be settled in convertible sterling. Since thoi, even thooggi Japanese exports are limited by the COCOM Hat, the trade between the two countries has been expanding. Japanese exports to the Soviet Union in 19$9 amounted to $23 million, and Japan imported $39.L million worth of goods from the USSR in the same year. The trade balance between the two countries had always been unfavor­ able to Japan until 1961. Major items of Japanese imports from the Soviet Unicoi in 19$9 were lumber ($12.3 million), coal ($$ million), raw cotton ($2.7 million), petroleum and mineral oil ($2.6 million), and platinum ($2.1 million). Most of the Japanese imports from the Soviet % i o n are raw materials and semi-manufactures. On the other hand, Japan exported to the Soviet % l o n in 19^9 machinery ($10 million), metal products ($U*7 million), and textiles ($U.7 million). Host of tiie Japanese exports to the Soviet Union are finished or semi-finished manufactures, as shown In Table 36.

Japan's trade with the Waited states of America The United States has been the largest customer of Japanese exports accounting for 20.6 per cent of the total in the 1 9 ^ 's, idiile the United States' share of Japanese imports amounted to 35 per cent of her total imports. The dollar value of Japanese exports to the United States increased from $179 million in 1950 to $1*1*9 million in 1955 and to $1,031 million in 1959. They covered a wide

^sushoo Hakusho I960, p. 1*63. 2 $ 2 Table 36 Value of Japanese Exports to USSR by Commodity, AnnaaUy 19$7-19$9 (In million dollars) Commodity 1997 1998 1999 Machinery 1.32 2.86 9.98 Textiles 2.99 5.13 5.70 Metal products 3.16 8.17 5.75 Drugs & chemicals 0.26 0.96 0.91 Others 2.01 2.38 3.10 Total 9.30 1 8 .1 0 23.03

Source: Tsushoo Hakusho I960, p. 1*62. range of manufactured goods, including cotton, wool and silk manu­ factures, plywoods, paper, chinaware, tuna, toys, photographic equipment, electric apparatus, etc. In return, Japan is the second best outlet for U. S. exports, surpassed only by Canada. The value of Japanese imports from üie United States increased from $1*18 million in 1990 to $772 million in 1999 and to $1,113 million in 1999.^ The imports consisted principally of raw materials and foodstuffs, including raw cotton, wheat, soy beans, coking coal, scrap iron, machinery, chemicals, etc.

^alueof Japan's Trade with United Statesin xdllion dollars 1990 1991 1992 1993 1991* 1999 1996 1997 1998 1999

Exports “ T O "189 “ 2 ^ " t2 7 "277 “1*57 "55T "577 3X531 Imports 1*18 699 768 798 81*7 772 1065 I6l8 1095 1113

Source: Tsushoo Hakusho I960, p. 606. 1^3 The trade balance was unfavorable to Japan every year, but the deficits were covered by Japanextra Income from the U. S. Special Procurement expenditures except in 1957* Di the 1930's Japan earned IU*U billion from Its eoqports to the Thiited States and received $5.6 billion from Special Procurementj for a total of $10 billion. On the other hand, Japan paid $9.1 billion for imports from the United States In the same period. Thus, the over-all balance was favorable for Japan by $900 million. In the 193U-1936 period the pattern of Japanese exports to thé Italted States consisted of foodstuffs and raw materials (12 per cent), lig^it industty products (8U per cent), and heaiy and chemical manufactures (k per cent). Particularly, silk y a m alone amounted to as high es 59 per cent of Japan's total exports to the Uhlted States. In the postwar years the share of heavy and chemical Industries of Japanese exports to the United States has been Increasing steadily and amounted to 32.2 per cent In 1959, as shown in Table 37. However, 58*5 per cent, more than half, of Japan's total exports to the Ihilted States In 1959 consisted of l l ^ t industry products. As for the composition of American imports, the share of foodstuff and raw materials declined from 63 per cent of her total imports in 1955 to 5U per cent In 1959, «hile the share of industrial products increased from 3U per cent in 1955 to W* per cent in 1959. The share of heavy and chemical manufactures in the total Imports rose from 18 per cent in 1955 to 26 per cent In 1959, idille the share 2 $ k of light industry products increased only sli^tly from 16 per cent in 1955 to 18 per cent in 1959»^

Table 37 Percentage Distribution of Japanese Exports to the Itaited States in the Prewar and Postwar Periods Commodity 193U-36 1959 Total exports 1 0 0 . 09e 1 0 0 .09e 1 0 0 .09e Foods & raw natèrials 11.9 15.9 10.8 light industry products 8U.U 6 7 .2 57.0 Heavy & chemical . manufactures 3 .7 16.9 3 2 .2 Total exports 1 0 0 .09e 1 0 0 .09e 1 0 0 .09e Consumer goods 9 0 .2 76.0 76.6 . Foodstuffs 5.5 lO.U 8.3 Non-durables 8U.U 5 9 .3 1*9.7 Durables 0 .3 6 .3 16.0 Capital goods 9.8 2U.0 23.1*

Source: Tsushoo Hakusho 1961» pp. 33U-335-

Out of total West German exports to the Ihiited States in 195% 80.2 per cent were heavy and chemical manufactures^ as compared with 32.2 per cent of Japan. The corresponding ratio for France was 65.6 per cent and that of the TMited Kingdon was 61.6 per cent.2 In this respect Japan remains behind the other industrial nations.

tsushoo Hakusho 1961, p. 331. ^ibid., pp. 338-339. However, Japan has been adapting itself to the rising demand of the American people for hi^-grade consuner goods. Special attention has been given to expanding exports of labor-intensive products with a h i ^ value-added content but relatively little raw- naterial-inport cost, such as cameras and transistor radios. The share of consumer durables in Japan's exports to the Ibited States increased from 6.3 per cent in 195^ to 16.0 per cent in 19$9* The value of Japan's machinely exports to the United States increased by 5»8 times from 19^$ to 19^9 lAile the total exports increased by 2.U times in the same period.^ leading items of Japanese exports to the Thiited States in 1999 were clothing ($112 million, 10.6 per cent of the total Japanese exports to the United States), steel ($7U million, 7.2 per cent), radios ($62 million, 6.0 per cent), metal products ($61 million, 9.9 per cent), and plywood ($99 million, 9.7 per cent).2 The expansion of Japanese exports to the Thiited States was met by various aobi-import campaigns in the United States. Toluntazy quotas and other restraints on Japanese exports affected sales of such oommodities as cotton fabrics, canned tuna fish, sewing machines, and plywood. The problem of foreign disorimination against Japanese exports will be discussed in Chapter 8.

^Ibid., p. 126. tsushoo Hakusho I960: Kakuron, pp. 360-361. 1 $ 6

B a d e factors related to rapid «xpMii8j.cn of Japanese exporta The average annaal growth rate of Japan's export vaines in the 19^0'8 amounted to 23.1 per oent, ahidi is about three times as h i ^ as that of world exports in the same period. Since the volume of Japanese exports dropped so low at the end of the war, even a light recovery in eaq>orts would be reflected by a high rate of increase. However, Japan has maintained a high rate of export expansion for more than fifteen years in the postwar period. What are the main factors responsible for this economic success? 1. Improvement in Japan's competitive position in the world market In part, the continued growth of Japanese exports reflects Japan's strengthened competitive position in the world market. A naticm's relative export position may be considered as determined by the prices of its products, their quality, and the ability of the country to sipply commodities sufficient to meet a demand. To analyze the competitive position of Japanese exports mainly in terms of prioes, as shown in Table 38, Japan's relative export prices in general declined corpared with that of most other industrial nations, since labor productivity had increased and the unit wage cost for industrial products had been lowered. Two figures are particularly important in analyzing this change. The first is the increase in industrial labor productivity in Japan, which rose by 8U per cent between 1951 and 1959, while 157 industrial wages inereased by ozOy 1|5«2 per cent in the same period.^

Table 38 Ssport Prise Index of Selected Countries 1953, 1955, 1957, and 1959

(1953-100j Japan-100) Country mi mi mi Japan 100.0 100.0 100.0 100.0 United States 100.0 103.1 109.2 115.2 Canada 100.0 102.1 107.1 116.3 France 100.0 97.9 102.0 96.7 West Germany 100.0 101.0 105.1 108.7 Italy 100.0 96.9 96.9 90.2 Ketherland 100.0 103.1 107.1 109.8 Ikited Kingdom 100,0 lOU.l U 2 . 1 117.U

-MThe index numbers in this table were computed by dividing a general export price index (1953-100) of individual countries in each year by a corresponding index of Japan.

Source: Tsushoo Hakusho 1963, p. 201.

Between 1953 and 1958 labor productivity increased at an annual rate of 5.6 per cent in West Qermany, but the wage level increased at an annual rate of 6.9 per cent in the sane period, and the unit wage cost increased at 1.2 per cent annually. In the United Kingdom the average annual rate of increase in labor productivity between 1953 and 1958 was 2.5 per cent while the wage level rose at 6.5 per cent annually and the unit wage cost at k

^Japan Statistical Yearbook 1959, p. 359. 158 per oent in the sane period. Ih Japan, on the other hand, labor produotivlty Increased at an average annual rate of 7.6 per cent in the 1953-1958 period, idiile the wage level rose at 5>5 per cent. The rate of labor productivity in Japan, therefore, was greater than that oi any other nation except France.1 The increase in productivity idiich in general may be said to reflect the rate of capital investment, will not affect the unit cost of an item if wages are increasing at the same rate. The level of Industrial wages in Japan is lower than that of any industrial nation and in 1958, for example, the wage level in Japan was only one-tenth that of the United States, one-third that of the United Kingdom, and about four-tenths that of West Germany. 2 And Japan succeeded in keeping wage levels from advancing as fast as producti­ vity, while wages advanced faster than productivity in most other industrial countries. Only in Italy and Japan did the relative wage cost per unit decline in the 1953-1958 period. If the prewar wage

^Nihon Booeki Dokuhon, p. 133. ^Ibid., pp. 132-133. Hourly Wages of Industrial Worker in Major Industrial Countries in 1958, and Average Annual Rate of Increase in Productivily and Wages between 1953 and 1958 Thiited United West States Kingdom Germany France Ja^an

Wage in cent # - " 3 7 lUtios (U. 8.-100) 100 32 2h 17 16 10 Annual rate of pro­ ductivity increase 2.9^ 2.5^ 7.7% 5.6$ 6.1*$ 7.6$ Annual ratte of wage increase 3.8 6.5 8.2 6.9 5.0 5.5 2S9 levai and that of 19^8 are compared, the real wage Increased in Japan only by 25 per cent, as against 80 per cent in the Ikited States and 50 per cent in West Germany, The advantage of low wage levels, however, is partially offset by import discrimination against Japan. Since Japan exports mainly labor-intensive products to advanced nations, and since these products are, on the whole, produced by the lower half of the "dual ecanosy," the Japanese low wages provide a rationalization for this discrimi­ nation. In 1958, 55*3 per cent of Japan's total exports were products of small business establishmwts with less than 200 employees. Especially, 78.3 per cent of general fabric exports, 9b.9 per cent of clothing exports were produced by such small business enterprises in 1958.^ The same program of vigorous capital investment which increased productivity per woxicer also increased the total productive capacity of Japan rapidly as illustrated by the average annual expansion rate of industrial output tdiich amounted to 17.1 per cent in the 1950's. At lAe same time, Japan's capacity to supply exports was also greatly expanded. Such are the main causes for the improvement of Japan's competitive position in the world market during the 1950's.

%lhon Booeki Dokuhon, pp. 132-3. tsushoo Hakusho I960; Sooron, p. 115. 160

2. Changes in world demand and the structure of Japanese exports The increased demand in the world market for the products of the heavy and chemical industries has fortunately paralleled the development of the Japanese econoey. This demand, triggered by increased industrialization in both the developed and underdeveloped nations, is accompanied, in industrially advanced countries, by a rise in the standard of living and an increased demand for high-grade consumer goods whose production requires intensive labor (generally skilled labor) input. As Japanese wage rates are low and the technical competence of Japanese workers high, such an increase in consumer demand is favorable to Japan. With its rapid economic growth the consumption pattern of the Japanese people has also become diversified resulting in the increased production of consumer durable goods and their improved quality. The growth of the Japanese domestic market further aided export, since the increased domestic demand allowed the introduction of high-capacity, hi^-efficiency production methods. The resultant increase in the export of high-grade consumer and sundry goods contributed to expansion of Japan's over-all exports along with spectacular increase in the export of ^ectrical machinery and ships. The following provides some account of how Japan's exports have reacted to the trend of world demand for the period 19$3-1?^8. The world's import increased by 31 per cent between 1953 and 1958, though the rate of increase varies with countries and regions. If markets are concentrated in areas where the rate of increase in 161 inports is high, it is easy to expand exports. On the oüier hand, if the demand in major export markets is in a slump, the esqports expan­ sion is difficult, the e:qporter being forced either to drive away goods from other countries or to advance into new markets. From this point of view, the oompositi

Table 39 Percentage Distribution of Japanese Exports, and Rates of Increase in Japan^s Exports and Foreign Markets' Imports, by Geographic Area, 19$3-19$8 Distribution Japan's rate Import increase Ratio of of export Rate of Japan's exports Increase Foreign Markets Market "SSF“ 1953-58 1953-58 All world 100^ 100^ 126^ 32% Advanced areas . . 3U U9 225 33 Horth America^*^ 19 26 213 19 West Europe 9 12 186 Uo Oceania. V 2 3 320 U2 Liberia h 8 3Ü2 - TWerdeveloped areas 6$ U7 65 27 Neighboring. . countries'®' 17 7 - 1 13 Southeast Asia 30 23 69 17 Middle Near East 3 k 18U 61 Africa^d/ 6 6 136 33 Latin America 9 7 . 89 30 Communist bloc 1 2 5U9 27

S. and Canada. vbvxs destined for advanced countries as it consists mainly of flag^onvenience vessels. J®^onBosa, South Korea, and Okinawa. (d)Ejccept Liberia. Source: Economic Survey of Japan 19$9-60, p. 2^7.

But paralleling the increased demand for the heavy and chemical manufactures, there had been a rise in the standard of living in the industrial countries and an increased demand for consumer durable goods. True, the demand for textile, except for clothing, was stagnant in the world market, but the value of world import of such 163 items as furniture and wood products, clothing, footware, and consumer durable goods showed an increase of 70 per cent during the 19^3-19$8 period, as compared with an increase of 31 per cent for heavy and chemical manufactures. ^ Japan has been adapting itself to the trend of the world's rising demand for high-grade consumer goods, and has increased its export of light machinery very considerably. Exports of light machinery by 13 major countries showed a 2.2 fold increase during the 19$0-19$8 period, lAile Japan's exports registered the far greater increase rate of seven times.^ Japan has also been introducing new types of export items* Table UO shows a number of new exported items in 19^9, which were not to be found in 19^3* These new items can be divided into two groups: those which were new for Japan in the postwar years.but whidi had been export items for advanced industrial countries before the war, such as refrigerators, cameras, passenger cars, electric washers, electric phonographs, etc., and those ^ i c h were newly developed in the postwar years, such as synthetic fibers, tape recorders, transistors, television sets, plastic products, and the like. These two groups of commodities reflect the problems of industrial development in Japan in the postwar years, since Japan has been obliged to catch up with the advanced industrial countries,

^Economic Survey of Japan 19^9-60, p. 258.

^Ibid., pp. 261-262. 1 6 U while at the sane tine incorporating nost of the advanced technology of the world.

Table UO New Export Itens for Japan and Their Anount of Exports, 1951» 1953» and 1S$9 (Value in million dollars)

Commodity 1 9 ^ 1 9 ^ 1 9 ^ Antibiotics 0.8 1.U 2.8 Vacuum tubes 0.2 0.1 U.2 Electric measuring instruments 1.7 1.5 3.1 Motorcycles 0.2 0.2 5.0 Buses 1.9 3.1 28.2 Automobile bodies 0.3 0.2 5.5 Automobile parts 0.7 1.2 lo.U Cameras 1.9 5.9 31.2 Optical instruments 9.3 7.7 29.9 Plastic products 0.3 0.5 3.9 Synthetic plastic materials 0.8 16.6 Synthetic fibers and fabrics 19.5 Tape recorders 3.2 Electric phonographs 2.9 Transistors 3.2 Transistor radios 93.6 Television sets 2.1 Electric skillets 0.1 Electric washers 0.3 Passenger cars 7.7 Electric refrigerators 1.0

Total 12.9 22.6 27U.U

Source: Eananori, Hisao, op. cit., p. 73.

To determine the particular direction of the development of the Japanese exports, however, more must be taken into account t h ^ the varying structure of foreign trade and the changing proportions 1 6 $ of the values of particular export items to the total value of all exports. For, though the proportion of a certain item may gradually increase, such an increase may not uniquely characterize that particular national economy, but may be part of a world-wide trend. To obtain an accurate picture of the export specialization of a particular economy in relation to the world, the concept of the export specialization coefficient is available.^ As shown in Table t|l, the ratio of Japanese heavy and chemical industry exports to the nation's total exports increased from 33 per cent in 19$3 to 37 per cent in 19$8, The specializa­ tion coefficient, however, remained practically the same, as the structure of world trade showed a simd.lar trend of specialization during the same period. On the other hand, Japan's export specialization coefficient for consumer durable goods increased from 1 in 19^3 to 3 in 1958. Especially high rates of increase were recorded for cameras and sewing machines, with Japanese exports in these fields representing

^This coefficient is obtained fay dividing the ratio of the export value of a particular item (A) to the sum of a nation's total exports (b ) by the ratio of the world export value of that same item (C) to the world's total exports (D). thus A ^

The coefficient equals the v ^ u e obtained fay dividing a country's, item-wise share of the world's total exports with that for «01.items. In case the coefficient is more than 1, it implies that a nation's export construction is highly specialized as far as that particular export item is concerned. 166 about UO per cent of the world's total exports. Japan's ^eciall- zatlon coefficient for radios jumped from less than 0.3 in 19$$ to more than $ in 19^8.^ Japan's exports of television sets, electric refrigerators, motorcycles, plastic products, and the like, though still negligible in total value, have shown a remarkable increase in recent years.

Table 1|1 Expott Structures of Japan and World, and Japan's Export Specialization Coefficients 1953 and 1958 Export Export Structure Structure Japan's specializa­ of Japan (A) of World (B) tion coefficient (C) Commodity 1953"— T m " l Ë T Total exports 100.0^ 100.0^ 100 .0 ^ loo.oÿ 1.0 1.0 Foodstuffs and raw materials 17.U 12.3 50.3 U6.7 0.3 0.3 Industrial products 82.6 87.6 U8.6 52.3 1.7 1.7 . Li^t industry 5 0 .2 50.9 20.U 19.2 2.5 2.7 Heavy and chemi­ cal industry 32.U 36.7 28.2 33.2 1.2 1.1 Chemicals U.9 U.9 U.6 5.7 1.1 0.9 Hstals 12.h 9.9 6.1 6.7 2.1 1.5 Machinery 15.1 22.0 17.5 20.8 0.9 1.1 Special goods 0.1 1.1 1.0 - 0.1

*(G) - (A)/(B). Specialization Japan's export World's export coefficient of Item X « v^ue of X r rslu e-o fI Japan's export total World's export total Source: EcontHnic Survey of Japan 1959-60, p. 259.

^Ibid., pp. 261-262. 167 Summary The value of Japanese merchandise exports increased in the 19^0'8 at an average annual rate of 23.1 per cent, about three times as fast as that of world exports. The 6alue of both exports and imports in 19^9 was nearly four times that of the 193U-1936 average. However, the volume of 19^9 exports was only 17 per cent higher than

•ttie I93U-I936 level, while the volume of imports increased by U8 per cent over Uie prewar level. Japan's share in world exports in 1959 was only 3 ,k per cent as coaçared with 5.U per cent in 1938, while Japan's share in world imports in 1959 was also only 3*U per cent as against U.6 per cent in 1938. The average ratio between the value of exports and the gross national product in the 1950's was 13 per cent, as compared witia 2U per cent in the 1930's. The average ratio between the value of imports and the gross national product in the 1950's was only 12 per cent as against 22 per cent in the 1930's. Thus, Japan achieved a higher rate of economic growth in the 1950's than in the 1930's with a relatively lower level of foreign trade. One of the major reasons for the reduction of the share of exports in the gross national product in the 1950's is the changing pattern of the commodity composition of Japan's foreign trade. There has been considerable diversification of Japanese exports with a shift into the heavy and chemical industries. The net foreign Currency earning ratio of Japanese exports has been constantly rising, that is, Japan has been increasing the export of commodities lAich require spending of a relatively smaller per cent of these 168 total values for foreign raar materials as well as commodities which are skilled-labor-intensive products. The relative importance of textiles in Japanese exports has been declining while that of machinery has been increasing rapidly. Japan exports labor-intensive (particularly skilled laboz^ products to advanced industrial nations and capital-intensive products to underdeveloped countries. While 72 per cent of Japanese exports in the 193U-1936 period were to underdeveloped markets, the share of advanced nations in Japanese exports has increased in the postwar years, amounting to more than half of the total exports in 19^9. On the import side, the share of Asian cwmtries in Japanese imports declined from 53 per cent in the 193U-1936 period to 33 per cent in 1959. (ki the other hand, the United States' share rose from 25 per cent to 31 per cent. Japan has greatly improved its competitive position in the world market in the 1950's. % r o u ^ a high rate of capital invest­ ment in plant and equipment and a substantial improvement in labor skills, labor productivity in Japan has increased so much that Japan's relative export prices declined in general as compared with those of most of other industrial nations. The increased demand in the world market for products of heavy, and chemical industries has paralleled the development of the Japanese economy. Furthermore, Japan has well adapted her export structure to the rising trend of the world demand for hi^-grade consumer goods, which has been favorable to Japan ^diere wage rates are relatively low and technical competence of workers is hl^. Thus Japan succeeded in maintaining Ï6^ a higher rate of esqport expansion In the 19^0* s than that of aiQr other advanced nation. CH&FTEE S U

ASALYSIS Œ THE HA.JCE ITEMS IN THE JAPANESE BAIANGE (F PAYMENTS IN THE 19^0'S: NONrHEECHANDISE ITEMS CF THE CT]RR£NT ACCODNF

Over-all balance of non-roerchandise iiewa of the currwt aceomtb

As pointed out above, in the prewar years Japan had a favorable balance in the invisible trade of the current account almost continuously since 1911». Furthermore, this favorable balance was large enough to cover chronic deficits in the merchandise trade and to produce a considerable amount of favor­ able net receipts in the total current account. During the 19^0's the balance of all items other than the merchandise trade in the current account was favorable, as shown in Table 1»3. However, the favorable balance in the 1950's was possible only because of the existence of U. S. economic aid to Japan and H. S. Special Procurement expenditures. For the whole decade, the total favorable balance for items other than the merchandise trade in the current account amounted to $3,997 million. But without TJ. S. economic aid and Special Procure­ ment whidi together contributed $5,829 million to the Japanese econony during this period, this favorable balance would have been converted into a deficit of $1,832 million. 170 171 Table 2|2 Receipt and Payment in the Non-Herchandise Items of the Current Account, 19^0-19^9 (In millions of dollars) Year Receipt Payment Balance

1950 677 358 319 1951 950 18U 766 1952 96U 206 758 1953 777 213 56k 195U 713 2U8 U65 1955 823 326 U97 1956 698 U61 237 1957 600 529 71 1958 63k U6l 173 1959 713 566 1U7

Source: Keizai Yooran 1962, p. 172.

In the following sections an analysis will be made of U. S. Special Procurement, Shipping Account, and Investment Profit Account.

ÏÏ. S. Special Procurement expenditures Since Japan was the cheapest source of supply, the U, s. government made substantial purchases of goods and services in the country to be used by the U. S. military and economic aid program, particularly in Asia. As shown in Table U3, Japan's foreign exchange receipts from Special Procurement were substantial, amounting to a maximum of 38.2 per cent of Japan's total foreign exchange in 1953* Though the amount has been declining since then, these earnings in 1959 still accounted for 11.6 per cent of Japan's total foreign exchange earnings. 172 Tabla U3 Japan's Foreign Exchange Receipts throu^ U. S. Special Procurement, 1952-1^59 (In millions of dollars) Sales of Construct.on Other Economie Per cent of Japanese Expenses in Military Aid Japan's total Tear Currency Okinawa Procurement Programs Total Reeeipts

1952 287.7 16.6 503.6 16.2 82U.1 36.8^ 1953 322.6 11.3 U56.0 19.5 609.lt 38.2 . 195U 313.1 10.6 21*5.8 26.6 596.1 25.8 1955 287.1 5.0 193.9 70.6 556.6 20.9 1956 277.7 6.1 187.3 12U.3 595.lt 18.5 1957 259.lt 6.9 15U.6 128.lt 5U9.3 15.1 1958 207.5 9.2 163.5 101:3 1*81.5 13.7 1959 209.6 18.5 131.3 lH.lt 1*70.8 11.6

Source: Keizai Tooran 1962, p. 203.

In the early 1950's most of Japan's receipts from the Special Procurement were earned through the procurement of military supplies, but the e^qpenditures for Asian economic aid programs through the International Cooperation Administration and other agencies have been rising recently. Since receipts from the Special Procurement are income of a temporary nature, it would be unwise for Japan to depend on these receipts for offsetting the deficit in the merchandise trade any longer.

Shipping account Before the war the Japanese merchant fleet totaled 6.1 nâllicn tons in 19U0, and Japan carried 68 per cent of its imports and 75 i n per cent ot its exports in its own vessels.^ In addition, Japanese ships earned foreign exchange for their services in transport between foreign nations. The sales of shipping services to non-residents provided Japan with an important source of foreign exchange, and the favorable balance in the shipping account covered the deficit in the merchandise trade. The wartime destruction of the merchant fleet reduced Japanese carrying capacity to a little more than a million tons, and> as a result Japan was able to carry on3y 25 per cent of its imports and 15 per cent of its exports in its own vessels in 1950. But by the end of Idle 1950's the Japanese merchant fleet had expanded to 6.3 million tons and Japanese ships carried 5S per cent of Japan's total exports and 53 per cent of her imports in 1959. Japan was the fifth largest ship owner in the world in 1959, following the United States (25*3 million tons), the United Kingdom (20.8 million tons, Liberia (11.9 million tons), and Norway (10.U million tons).^ Hi spite of the expansion of the Japanese merchant fleet Japan's balance in the shipping account recorded a deficit every year in the 1950's, as may be seen in Table Wi. In 1957, for example, the net payments in the shipping account amounted to as much as $500 million. Even thou^ Japanese ships carried more than half of Japanese imports and exports in 1959, Japan spent

T Japan's Postwar Economy, p. 3U6. ^Keizai Yooran 1962, pp. 136-137. ^Ibid.. p. 289. $i|,66.6 million for foreign shipping services -tdiile it earned on]y

$288 million, the deficit being $178.6 million. One reason for such continuous deficits in the shipping account is the relatively high expenses which Japanese ships incur in foreign ports.

Table l|it Receipt and Payment in Shipping Account, Japan, 19^0-19^9 (In million dollars) Tear Receipt Payment Balance

1950 9.1 96.5 - 8 7 .3 1951 Ul.O 255.6 —2IÛ.6 1952 7 1 .3 223.3 -15 1 .9 1953 76.6 2U6.9 -1 7 0 .3 195U 8 9 .7 255.8 -166.1 1955 1 2 7 .3 276,0 -H18.8 1956 209.8 5 1 3 .0 -303.2 1957 260.6 761.9 -501.3 1958 2U0 .I UO6 .O -165.9 1959 28 8 .0 U66.6 -178.6

Source: Tables 23, 2k, and 2 5.

Japan ranked seventh in ship-building among world ship­ builders in 19^U* but Japan has been the world's largest shipbuilder since 1956. In 1959 Japan built 1.8 million tons of steel vessels and exported 1.1 million tons valued at $358 million--the largest single item in the Japanese exports of that year. TAth great expansion in the Japanese ship-building industry, presumably, Japan will continue to expand its merchant fleet so as not only to earn net foreign exchange receipts but also to restore this important source of foreign exchange to its prewar importance. 17$ Divestment profita and royalties

Di 1936 Japan had net receipts of ($0.U million in the investment profit account and was a net creditor nation. Though

Japan had been a capital exporting countxy since 1l929 s payments of interest on Japan's foreign debt kept the balance of the investment- profit account unfavorable to Japan until 1933* Since Japan lost all of its foreign assets in the war, it has been a net debtor countxy in the postwar years, and the balance of the investment-profit account has been unfavorable every year, as indicated in Table Current payments include both interest on Japan's prewar debt as well as on the capital borrowed in the postwar period to finance reconstruction and development of Japanese industries. Japan's receipts in this account consisted primarily of interest on the Japanese government's deposits with foreign banks. However, Japan has expanded her foreign investment rather since 19$$ and has been receiving profits on its direct investment abroad in recent years. Payments and receipts of royalties based on technical assistance contracts are included in the "Other Service" classi­ fication of the current account. Japan paid royalties of $12 million in 19$3 (fiscal year), of $U0 million in 19$7, and of $$9 million in 19$9, reflecting the increase in technical assistance contracts between Japan and advanced industrial countries during the 19$0's. tl6 On the other hand. In 19^9 Japan herself began to assume the same relation toward less developed nations, earning the comparatively 1 modest sum of one million dollars.

Table ii5

Receipt and Payment in Investment Profit Account Japan, 19^0-1959

(In million dollars)

Tear Receipt Payment Balance 1950 0.3 5.9 - 5.5 1951 1 .0 6.3 - 5.3 1952 6 .0 10.9 - k.9 1953 11.7 3k. 9 -2 3 .1 195k 8 .2 k7.0 -38.7 1955 Ik.O 55.k -kl.k 1956 27.3 6 6 .1 -3 8 .8 1957 33.9 82.k -k8.7 1958 27.1 66.9 -39.-8 1959 U7.8 85.7 -3 7 .3

Source: Tables 23, 2kj, and 25

^Keizai Hakusho 1961, p. 7$. CHAPTER SE7E»

ANAIJSIS CP THE MAJOR ITEMS IN THE JAPANESE BALANCE OF PAYMENTS IN THE 1950 'S: CAPITAL MOVEMENTS

Had Japan been required to rely solely on its own domestic ability to generate capital, its economic recoveiy and deTelopment would have proceeded more slowly. But two major foreign sources were available: government loans and private foreign investment. As already mentioned, American economic aid to Japan was of considerable importance, and to take a single example, nearly 30 peir cent of the long-term capital invested in Japan's major industries from 191*9 to 1951 was supplied by the U, S, Economic Aid Counterpart Fund established in 191*9 Though some uses of American economic aid may be function­ ally considered as importation of foreign capital, it is not treated as such in computing balance of international payments, and the theoretical assumption behind current accounting and recording techniques preclude an analysis of economic aid as imported capital. Hence, this chapter will deal only with the investment of private foreign capital in Japan, the techniques

•^n d a i Nihon Keizairon, p. 151*.

Î77 178 used by the Japanese government to direct and control the flow of foreign capital, and activities of Japanese capital abroad.

Regulations concerning foreign investment . Under the provisions of the Foreign Investment Law, which was enacted in 19U9, any investment or technological licensing agreement >Aiich calls for remittance of royalties in dollars and other foreign currencies must be approved in advance by the KLnistiy of Finance* At present, approval is being granted only to those projects which, in the opinion of the Ministry, will result in a net gain in Japan's foreign exchange holdings or which will contribute to the growth and development of Japan's important industries or public undertakings. Chce an investment project has been approved, however, no further atJproval under the foreign exchange control regulations is required for the overseas remittance of the license fee on a contract of technical assistance, for payments of dividends on stocks, or of interest on debentures and loans, and the payment of these obligations is virtually guaranteed by the Japanese government. After two years foreign investors may begin to redeem their principal, idiich is payable in a minimum of three yearly installments. Ordinarily— apart from special validation — foreign investors may now own no more than 10 per cent of the total issued capital of Japanese firms in "restricted industries"

^Japan I A Decade of Growth, p. U9« 179 (transportj power, banking, etc.), and no more than 15 per cent in a H other industries.1

Introduction of foreign technology The Japanese government has encouraged the licensing of patent rights whidi make available to Japanese industries the latest industrial techniques for the purpose of improving the competitive position of Japanese industries in Uie world market. The introduction of foreign technology is not shown as a capital transaction in the balance of payments, but it has to be approved by the Japanese government under the Foreign Investment Law.

From 1950 to the end of 1959 the government approved a total of 1,021 contracts of this type. As m i ^ t be expected, these were considered to contribute significantly to Japan's industrial development, and tended to be concentrated in heavy industry. Of the total, 5Ll cases were concerned with the machi­ nery industry, 211 with chemicals, 106 with the metal industry, and 56 with the textile industry. Over 60 per cent of all the agreements (669) cases have been with American firms, and the bulk of the remainder was divided among Switzerland, West Germany, 2 and a few others, as shown below:

^Loc. cit. ^sushoo Hakusho I960, p. 517. 1 8 0 United Switzer- West United States land Germany France Kingdom Others Total Number of cases, 669 81 71 32 31 137 1,021 1950-^9 ]h 19^0 Japan paid about half a million dollars In royalties, and the figure has been Increasing ever since. Uy 1959 the yearly- total had risen to $U9 million.

Importation of foreign capital Since interest rates are hi^er in Japan than in other industrialized countries, the import of additional capital offers advantages both to the Japanese and foreign investors. Mortgage loans in Japan, for example, cost between 9 and 10 per cent. Commercial bank rates for good risks range between 7.5 and 9 per cent. The rediscount rate of the central bank in 1959 was 7*3 per cent in Japan, as compared with 3*5 per cent in the United Kingdom and U per cent in the lW.ted States and West Germany.^ The dollar amount of foreign capital investment in Japan for a duration of more than one year amounted to $628 million from 1950 to March, I960, as shown in Table U6. Since 1953 loans comprised the major part of foreign investment each year, and the total amount of loan in this period,

$726,697 amounted to 87.7 per cent of the total foreign investment. However, this total includes loans made ty the International Bank for Reconstruction and Development and by the Export and Import

^Keizai Yooran 1962, pp. 278-279. 181

Bank of Washington» both of lAioh accounted for more tiian 60 per cent of the total loans. The loans by the two banks have been channeled through the Japan Development Bank» a government agency, and have been used for electric power development» expansion and moderniza­ tion of steel plants» road building» land reclamation and irrigation.

Table

Foreign Investment in Japan» 19^0-1959

(In thousands of dollars)

Fiscal Tear Loans Stock and Others Total 1950 3,150 3,150 1951 1,026 13,326 17,352 1952 3U,U57 9,291* 1*1*,751 1953 1*9,362 5,561* 51*,926 195U 15,279 l*,028 19,307 1955 1*7,051* 5,160 52,211; 1956 93,652 9,650 103,302 1^57 123,979 11,612 135,591 1958 231,1*73 11,1*91* 21*2,967 1959 127,61^ 27,275 151*, 890 Total 726,897 101,559 828,1*56

1. Each fiscal year begins on April, and ends on March 31.

2. The total figures do not show the outstanding balance but the cumulative total by the end of March 31, I960.

3. The above figures do not include loans and other investment for duration of no longer than one year.

L. Loans by the International Bank for Reconstruction and Development ($302,900)» and by the Export and Import Bank of Washington ($151,393) are included in the above.

Source; Keizai Yooran 1962» pp. 20i|.-205. m . la early 19$9 Japan reentered the New York capital market directly for the first time since the early 1930's by floating bcaid issues amounting to $30 million. This event may be regarded in a way as marking the full reestablishment of Japan's credit in the world financial market. In the prewar days Japan attracted foreign capital mostly through the sale of Japanese foreign bonds. It is expected that this method of obtaining foreign capital will play a more important role in the future. The redemption of foreign investment in Japan, that is, Japan's repayment of the principal of loans and other security investment, has still remained relatively small compared with the amount of foreign investment being attracted into Japan, even thou^ it has been rising every year. Japan's payment of this nature, including interest and divident payments, amounted to $28,391 in 19^8 and $U2,U15 in 19^9. The total payment in the 19^0-19^9 period amounted to $l^Ujl37, as compared with #828,U56 of foreign capital brou^t into Japan during the same period.

Japan's foreign investment With the growth of Japanese industrialization, Japan has in turn become a capital exporting country. The reestablishment of Japanese overseas investment after the Second World War began with the payment of Japan's share of the capital of the International Monetary Fund and International Bank for Reconstruction and

^sushoo Hakusho I960, p. ?17. 183 Development in 1952 > an inreatment whioh anonnted to |19U million by the end of 1959.^ Aa for private inveatnent abroad, by the end of March, I960, a total of 627 projects had been approved by the Ministry of Finance and l80 more projects mere approved by March, 1961. Of the total, 328 cases or UO per cent mere in Southeast Asia; 235 cases, about 30 per cent mere in Central and South America; and 156 cases, about 20 per cent in the %ited States. According to the Foreign Exchange Control Lam, Japanese foreign investment is classified into four categories: (1) technical assistance contracts; (2) acquisition of stock involving the establishment of a foreign corporation for commercial activity; (3) acquisition of stock involving the establishment of a foreign corporation for production purpose; (!(.) other investments. The number of projects in the last three categories amounted to 623 and the total dollar amount of such investment amounted to $356,718 by the end of March, 1961. Of this total, U6 per cent mas spent in Central and South America mostly for production activity and 23 per cent in the United States mostly for commercial activity. Of a total 18U eases of technical assistance contracts, 127 cases mere in Southeast Asia and 38 cases in Central o and South America.

^Booe^ Jiynto ira Mi^on Kelzü o Poo Kaeruka (Horn is Japanese Economy Affected ty trade liberalization), Diamond-sha, Tolyo* 1950, p. 105 . ^Keizai Yooran 1962, pp. 205-206. iSii Furtheimorej the credits advanced through the Japan Export- Iwport Bank to postpone payments for heavy machinery and industrial equipment exported to underdeveloped areas may represent Japanese foreign investment, idiich amounted to $2l|2 million at the end of 1959.^ Japan was a net creditor country throughout most of the

1930 's, and hopes soon to restore its prewar position, particularly through the export of capital to underdeveloped countries. In this respect, the economic picture has been steadily improving each year, and Japan's receipts of investment profits have risen from $12 million dollars in 19$3 (fiscal year) to $22 million in 19^8, $U2 million in 19S9, and $^8 million in i960 . Since Japan herself paid out $1|5 million in 19S3, $li9 million in 1958, and $69 million in i960 to foreign investors, the unfavorable balance of the investment- profit account has been reduced. The net outflow of $11 million in i960 should be compared with the earlier net payments of $33 million in 1953 and $25 million in 1958.^

lDi4raond-sha, op. cit., p. 10^. ^Keizai Hakusho 1961, p. 75» CmPTER EIGHT

POLICIES AFFECTING JAPAN'S BALANCE . CP INTERKATICNAL PAYMENTS

As mentioned already, Japan had three balance of payments crises in the 19$0's, and each time it was effectively overcome mainGy by a tight money policy. On the other hand, when Japan's foreign exchange reserves were increasing, liberal monetary and fiscal policies were followed to promote modernization of Japanese industries. Though such short-term monetary and fiscal policies certainly affected the balance of payments, in this chapter an analysis will be made, not of policy measures of a temporazy nature, but rather of those basic policies and regulations of both the Japanese and foreign govemmenbs which affect foreign exchange and trade control, the promotion of exports, and the tariff system.

Japan's foreign exchange and irade control ' Though Japan has been a member of the International Monetary Fund since May, 19$2, it was only in April, 196U, that Japan became a member under the eighth article of the Fund's charter which forbids member nations to control international transactions of the current account in order to regulate the balance of payments. Hence, the

185 m description that loUows of the measures taken by the Japanese government to control trade Is largely outdated.

During the decade of the 19S0 * s, thou^ the Japanese economy

expanded vèzy rapidly, Japan did not have sufficient foreign exchange

reserves to liberalize trade and other foreign rechange transactions.

In order to secure enou^ foreign exchange assets and establish a

sound basis of foreign exchange distribution for needed imports, the

Exchange and Foreign Trade Control Law was enacted in December, 19^9.

The major points of this law are indicated below:

1. Concentration of foreign exchange holdings

All foreign exchange obtained ly Japanese citizens must be

sold for domestic currency to the government throu^ authorized

foreign exchange banks, though the originally rigid controls have

been gradually liberalized.

In order to promote a smooth settlement of foreign exchange

transactions, the Japanese government makes its foreign exchange

deposit under the name of the Mnister of Finance with both Japanese

banks authorized to handle foreign exchange and major American and

British banks, so that Japanese banks can utilize this deposit for

their foreign exchange transactions. These banks are also permitted

to keep the foreign exchange which they buy even though they have to

report to the government the amount of their foreign exchange hold­

ings regularly. % t i l recently the foreign exchange holdings of 1 87

Japanese banks consisted mainly of foreign exchange deposited by the

Japanese government which they are allowed to use under certain conditions.

Japanese trading firms were also authorized in 19^6 to keep a limited amount of the foreign exchange which they obtained by purchase from foreign exchange banks. Now they are permitted to keep foreign exchange which they acquire from exports with Japanese foreign exchange banks, though only for a maximum of 20 days.

2. Foreign exchange budget

Since the purpose of foreign exchange control is to use foreign currency most effectively for the benefit of the countly, the distribution of this foreign exchange has to be carefully planned.

The Japanese foreign exchange budget system is unique, because the budget has to be disdlosed eveiy half year. No other country has such an open foreign exchange budget system, since the announcement of foreign exchange allocations for various import items may affect

Japanese importers disadvantageously, thou^ the government attempts to distribute foreign exchange and import licenses fairly.

3. System of import control

The total amount of foreign exchange to be used for imports and other purposes is determined by the foreign exchange budget for each six-month period. In effect, the government grants approval to individual importers to import authorized merchandise by allocating the necessary amount of foreign exchange. Merchandise for idiidi foreign exchange is spent is divided into three classes. Under the first, the Foreign Currency Allocation System, import licenses are 188

granted only to those who will themselves immediately use the

imported goods. For example, the foreign exchange allocation for

raw cotton is granted only to spinning companies, and is based cm

their production capacity. Items included under this system are

mostly very important raw materials and foodstuffs idilch are imported

in large quantities. Detailed announcements about the volume and

dollar value of such imports are not openly made. Second, the

Automatic Fund Allocation System grants an unlimited amount of

foreign exchange to any importer willing to import the goods listed

under this system. Various kinds of machines and some consumer

goods are included in the list of imports under this system. Last,

under the Automatic Approval system the total amount of foreign

exchange available for imports of items listed under this system is

determined first, and as long as the fund remains any importer is

granted approval to import any item on this list in any quantity.

This last system is the most liberal of the three methods. At the

end of 19^9 only 31 per cent of the total import budget was

allocated to tiie Automatic Approval %rstem. Some of the major items

listed under this system were raw rubber, iron ore, lumber, and

coffee beans.^

U. System of export control

As a rule, export of any merchandise is automatically

approved--though certain items and certain countries are excluded on

a restricted list— so long as the settlement of the transadtion is

^Diamond-sha, op. cit., pp. 3^-38. 189 made by authorized methods. Prohibited items are determined by the necessities of military, political, and economic strategy, and the dwestio supply and demand conditions. To preserve good relations with its trading partners the Japanese government is particularly interested in prohibiting or limiting the export of merchandise which is regarded as dumping by the importing countries. Such items as cotton yarns, fabrics of artificial fibers, chinauare, metal utensils, canned tuna, and domestic sewing machines are currently included under such export control regulation. The government may set a check or floor-prdce for such exports and refuse to approve the export of such items if the actual price is lower than the check price.* A more detailed discussion of this problem may be found in tile section below on foreign discrimination against Japanese exports.

Export promotion measures

Since export is vital for Japan's economic growth, various measures have been taken to promote it. Some of the most important

"I are described below.

1. Export-import link system

This system grants a license to import raw materials to those who have exported products made from them. For example, the exporter of cotton products can be given an import foreign exchange allocation for raw cotton which amounts to 75 per cent of the export value. This system produces a strong incentive to export products using imported

^ooeki no Chishitd. (Knowledge on Foreign Trade), Nihon Keizai Shinbunsha, Tokyo; 1961, pp. 137-151. w raw materials ; but as the trade liberalization program of the Japanese government develops, the importance of this system for export pro­ motion continues to decline. 2. Government fiscal aid to exporters

The government extends both tax reductions and special financial aid to exporters. Taxes on profits earned from exports are lower than ordinary business taxes. For example, up to 80 per cent of the profits earned by exporting industrial plants and equipment, or $ per cent of the export value can be exempted from taxable income of the manufactuere. For ordinary export items, 3 per cent of the export value can be exempted from the taxable income of the producer.

For trading firms 80 per cent of the profits earned by exporting ordinary items or, 1 per cent of the total export value can be exempted fran their taxable income. In order to promote the export of industrial plant and equipment for idiich the importing country cannot immediately pay, the government takes special measures to see that the importer of such materials can obtain the necessary long-term credits from the Japan Export-Import Bank. 3. Special bank financing system for export business To enable the Japanese exporters to prepare the shipments of merchandise, special low-rate credits are given. The commercial bank rate for ordinary business loans is about 7 to 9 per cent, but loans for export preparation can be obtained at ^ to 7 per cent from commercial banks if the exporter has already received the letter of 191 credit from the importer. The Bank of Japan, in tom, rediscounts such commercial paper at $ per cent, a figure lower than the basic rediscount rate.

The Japanese importer, in his turn, also can generally obtain low-rate loans, so long as there is no reason to restrict imports. Thou^ the rates are lower than those for ordinaxy business loans, however, they are a little higher than the rates for export financing loans, and special import financing loans are extended only for the import of merchandise considered important for Japanese economic progress.

U. Export risk insurance system

For export risks other than those covered by private insurance companies, the Export Insurance System established by the Japanese government protects Japanese exporters. War, revolution, foreign exchange control, and import restriction on the part of importing countries are considered emergency risks and covered by this insurance system.

Commercial banks idiich advanced money for export preparation are also protected, and the foreign investment of Japanese business firms or banks can be insured against the emergency risks listed above.

Japanese tariff system

Un most countries, restriction of imports is handled by a

combination of foreign exchange control, import qpiotas, and customs

duties. As already mentioned, since the 1930’s foreign exchange 192 control has been far more important in controling Japanese imports than the tariff system. Since the establishment of the modem state

of Japan in I863, the necessity of importing foreign raw materials

and technology has forced the government to follow a low tariff policy.

Japan was officially admitted to the General Agreement on

Tariff and Trade in 1955» but in accordance with the 12th article of

the GATT charter, Japan has remained a nation which is permitted to

adjust its balance of payments by controlling imports. Thé trend

toward liberalization of trade, however, has induced Japan to

gradually lower its tariffs still further. At the end of 1959 duty

rates for all imports were 50 per cent or less, with the exception

of tobacco which was taxed at 355 per cent. For example, the rates

for liquor and fur products were 50 per cent; cosmetics and watches,

between I4.O and 50 per cent; passenger cars, Uo per cent; dairy products, 30 to 35 per cent; flour, 25 per cent; wheat and metal products, 20 per cent; machinery, 15 to 20 per cent; airplanes and

rice, 15 per cent; crude oil and soy beans, 10 per cent. Salt, coal,

and iron ore were duty free.^

Such rates, however, do not reflect the actual duties levied,

for the government has the option of extending special exemptions for particular products imported for Japan's economic development, even

though the regular tariff remains hi^. For example, rice, wheat,

^Diamond-sha, op. cit., pp. 52-53. 1 95 and certain Igrpes of machinery are duty free^ and the actual duty on many other items is lower than the official rate.

Of the total value of Japanese imports in 1959, U9 per cent were officially duty free items, and 23 per cent were specifically exempted from duty. Thus, customs duties were imposed on only 28 per cent of the total import value.^

According to a survey of average duty rates on those industrial imports protected by tariffs in various countries in 1959, the rate was 19 per cent for Japan, 17 per cent for the United

States, 9 per cent for West Germany, and 6 per cent for Denmark.

Thus, Japan is the country with the highest duty rate among industrial nations as far as tariff-protected industrial products are concerned.^ The reason seems to be that these industrial nations have reached a stage of economic development in which they need no longer protect their infant industries, while Japan considers that it still must safeguard many of its industries from foreign competi­ tion, not only by foreign exchange control and import quotas but also by the imposition of customs duty.

As Japan's foreign exchange control has been gradually liberalized, the role of tariffs in the protection of domestic industries has become increasingly important. Along with the world trend of more and more liberalized trade, the rates for many import

^Loc. cit. l^Tanaka, Hiroshi, editor, Hachijokoku Jidaino N ^ o n Keizai (Japanese. Economy as Nation under the dth Article of QATt), Diaraond-sha, Tokyo: 1963, p. 161. m Items have to be lowered. At the same time, there are many other specific items for which the rates will probably be increased for the purpose of protecting domestic industries as Japan's foreign exchange control liberalization program develops.

Until 19S1 Japan followed a "specific duty" system, that is, a fixed sum of money is levied on each particular physical unit imported irrespective of its market value. This tariff system was revised, however, in the face of Japan's postwar inflation, and the present tariff system is based on an "ad valorem" system, that is, the duty is calculated as a fixed percentage of the price of an imported article. Under this system the burden of duty remain unchanged regardless of market-price fluctuation, but it is complex and costly to administer because each imported commodity must be separately evaluated. Hence, with its inflation problem now under control, Japan is expected to return to the specific duty system in the near future.

The critical problem of foreign discrimination against Japanese exports While there is a strong movement toward over-all reduction of tariffs and liberalization of trade among many member nations of GATT, there are still problems of discrimination and other restric­ tions against certain imported items even by advanced industrial nations. Japan was the last country among industrial nations to adopt the 8th article of the IMF charter, or the 11th article of the GATT 19> charter5 that la, it is no longer allowed to restrict its merchandise imports or other current transactions of its international trade in order to regulate its balance of payments. Since Japan has had a rigid foreign exchange control and import quota system until very recently^ it was only to be expected that it should meet foreign discrimination against Japanese exports, But^ Japan seems to have encountered more severe discrimination against its exports than any other nation.

When Japan became a member of GÔ.TT in 19^5, lU of the 3U member nations at that time refused to apply to Japan GATT-tariff rates for most-favored-nation treatment in accordance tith the 35th article of the GATT charter.^ Even in early 1962, 16 of the li3 members of GATT made use of the 35th article in discrimination against Japanese exports. Among these were such industrialized nations as the United Kingdom, France, Belgium, the Netherlands,

Luxemburg, and Austria.

Besides using the 35th article of GATT, there are other ways of discriminating against foreign imports. Though IMF and GATT regulations now allow no industrialized nation to restrict its imports simply in order to adjust its international payments, nations are still permitted to impose quotas on certain specific items.

Also, economic and political pressure can be applied to convince the exporting nation that it might be wiser and in the long run more

^ h e 35th article permits a GATT member nation to refuse to have GATT, relationship with another member of GATT at the time ■sdien either member of the two joins GATT. 196 profitable to impose voluntary quotas on the export of specific items, a technique ^Aiich has been particularly applied to Japanese exports to the Ihited States and Europe. Though trade restrictions have been considerably reduced in recent years— and indeed the situation is much improved over the 19$0's— the following discriminations against

Japanese goods still remain.

1. The United States^

Japan's exports to the lAaited States in 1961 amounted to

KlipPé? billion and comprised 2^ per cent of the total value of

Japanese exports in that year. More than $0 per cent of the exports to the U. S. was under some kind of American import restriction.

Export items which were under both American import restriction and

Japan's voluntary export restriction included clothing, radios, plywood, footwear, chinaware, carpets, sewing machines, cotton textiles, frozen tuna fish, wool textiles, athletic apparatus, and tiles. In 1961 the total export value of these items amounted to

$Ul9 million. Steel and nails were under American import restriction and Japan voluntarily restricted the export of canned tangerines.

Major Japanese exports to the United States which were not restricted were toys, silk yams, silk textiles, pearls, tape recorders, wood products, and nonferrous metals. To increase exports to the United

States under current import restrictions, Japan has to concentrate on export of these few types of goods.

^ekai Shi.io Hakusho. 196ii (Annual Report on World Market 196i4 Nihon BooefcL Shinkokai, Tokyo: 196U, pp. 77-85. The U. S. Trade Expansion Act of 1962 has aimed at increasing

American foreign trade by reducing tariffs between the United States and other countries, at the same time providing assistance to

American industries and workers that suffer from the increase in imports from other nations. Though many requests for the government assistance provided the Act have been presented to the Tariff

Committee, most of the cases have been turned down, and American industries are now seeking a revision of the Act which will provide more government protection. In addition, the so-called "Bty

American” policy on the part of both the Federal and local govern­ ments continues both in order to reduce the drain on gold reserves and to protect American industries.

2. Countries of the European Economic Community^

Japan's exports to the EEC countries in 1961 amounted to $213 million, comprising 5 per cent of the total Japanese exports in that year. Major items under import quota restrictions by a U six nations included clothing, cotton textiles, rayon textiles, chinaware, and sewing machines. The total export value of these items amounted to

$38 million. Toys and binoculars were restricted by three countries, and steel, canned fish, meat silk textiles, radios, and cameras were restricted by two. Only 21; per cent of the value of Japan's total exports to the EEC were free from import quota restrictions.

^Ibid., pp. U39-Ula. 1 9 8

Moreover, France, the Netherlands, Luxemburg, and Belgium have refused until recently to apply the most-favored-nation treat­

ment to Japanese exports by using the 35th article of the GATT

charter.

Of the six nations, France has imposed the most severe

restrictions on Japanese exports. In mid-1962, 389 items of

Japanese exports were under French discriminatory limitations on

import. The number of currently restricted goods has been reduced to

only 80, but it includes such important items as textiles, chinaware,

electric appliances, optical instruments, sewing machines, and

footwear. Moreover, the agreement between France and Japan provides

a so-called "safeguard" clause which permits the government of one

country to retaliate for any disturbance of the domestic market

caused by the exports of the other.

The Benelux group restricted ^6 items of Japanese exports in

1962, and 33 items still remain on the list. However, they include

such Japanese major exports as textiles, chinaware, and sewing

machines. The trade agreement between Japan and Benelux nations

also includes a safeguard clause.

West Germany has been applying the GATT most-favored-nation

tariff schedules to Japanese exports ever since Japan became a GATT

member. In 1959, however. West Germany obtained permission to waive

non-discriminatory duty-treatment of imports from Japan by use of the

2$th article of the GATT charter. Currently 28 items are on the

restricted list, including textiles, sewing machines, lighters, metal

toys, and chinaware. In addition, such items as ferro-alloys. J$9 onbrellas^ metal utensils^ and synthetic yarns are under Japan's voluntary export restriction.

Thou^ Italy, like West Germany, has been applying GA.TT

tariff rates to Japanese exports, Italian quota restrictions on

imports have been applied on a rather large scale, covering 19$

items in mid-1962. Currently 116 items are on the list, including

the familiar cotton textiles, radios, cameras, metal utensils,

frozen fish meat, television sets, and trucks. For sudh items the

Italian government allocates only a limited amount of foreign

exchange.

3* The United Kingdom^

The United Kingdom finally extended most-favored-nation

treatment to Japan in May, 1963. Until then Japanese exports faced

both discriminatory tariffs and import quotas, and 217 items were

on the restricted list in June, 1962. Though the number of

restricted import items from Japan has been reduced to only 18,

these include chinaware, ceramics, metal utensils, domestic sewing

machines, optical instruments, toys, and lighters. Also, the

currently effective trade agreement provides the usual safeguard

clause. However, the import quotas for the restricted items are

scheduled to increase each year and, in accordance with the

provisions of the trade agreement, to be completely dropped in 1966.

^Ibid., pp. U38-U39. 20 0

U. otter European coontiles

Spain was one of the countries which imposed veiy severe

restrictions on imports from Japan and the list of restricted imports included about 500 items at the end of 1961, Then, in

accordance with a trade agreement concluded in 1962 Japan was

entitled to receive the same treatment given to the member countries

of the Organization for Economic Cooperation and Development.

Japanese exports immediately rose— quadrupling in 1962. As a

result, Spain’s balance of trade with Japan was seriously upset and

the trade agreement was suddenly cancelled by Spain at the end of

1962. Currently all imports from Japan must each be individually

approved by the Spanish government and are subject to discriminatory

tariff in accordance with the 35th article of the GATT charter,

which was subscribed to by the Spanish government in 1963.

As a rule, Sweden has been treating Japanese exports in the

same way as imports from OECD countries, but 53 items are under quota

restriction, including chinaware, ceramics, textile products, and

sewing machines,

Norway had been imposing very severe restrictions on Japanese

exports until 1962, when she began treating Japan in general in the

same wey as OECD member countries. However textiles and other light

industrial products, h7 items in all, are on the list of restricted

imports.

^Ibid., pp. hhl-hh3. 2Ô1

Aslan countries

In any year, such countries in Asia as Thailand, the

Fhilipines, Taiwan, Indonesia, Korea, and Hongkong have each been importing from Japan more than most of the European countries.

Japan's exports to Asian countries (not including the Near East) amount to nearly 30 per cent of Japan's total exports each year. In most of these countries, however, the balance of payments is not

stabilized, and the Japanese export potential is therefore limited

more by their balance-of-payments condition than by import

restrictions against Japanese merchandise. Hence, Japan prefers to

expand its exports to those European countries which do not have

any serious balance-of-payments problems. But the import restric­

tions imposed by these countries require Japan to expand her trade

in other directions as well.

Summary

Although Japan had been a member of the International Monetary

Fund since 19^2, it was only April, 196U, that Japan agreed to the

8th article of IMF charter, which forbids member nations to control

current transactions in order to regulate their international balance

of payments. In the 1950's all foreign exchange obtained by Japanese

citizens had to be sold to the government, and the amount of foreign

exchange available for commodity imports and other purposes was

determined in advance by the government's foreign exchange budget.

However, the world trend toward trade liberalization forced the

Japanese government to loosen gradually its rigid foreign exchange 202 and trade control. Thus, the role of tariffs in the protection of domestic industries has become increasingly important.

In order to promote exports the government has developed various measures such as the Export-Import Link System, corporate income tax reduction on profits earned by export, special low rates on bank loans for the preparation of exports. On the other hand, .

Japan has been meeting very severe discrimination against its exports, especially in advanced nations. Import quotas are still imposed by many nations on major items of Japanese export. Also, the

Japanese government imposes voluntary restrictions on Japanese exports. CHA.PTEEI NINE

PROSPECT CF JAPAN'S ECONOMIC GROWTH AND BALANCE OF INTERNATICMAL PA2MENTS i ANAIZSIS OP TEN-miR INCOME DOUBLING PLAN

What of the future? A definite answer can hardly be given, but liiat the Japanese government itself expects may be considered*

The Ten-Tear Income Doubling i*lan, which contains both projections of future growth of the Japanese economy and an outline of the policies designed to achieve this, will be analyzed in this chapter.

Then, in the next chapter the records of the Japanese economy in the first three years of the I960's will be examined, and its actual development compared with the plan.

Background of the plan

Though the Japanese economy is fundamentally based on the free enterprise system and a free market mechanism, the complications of both domestic and international economies force the government to take an active part in guiding the path of Japanese economic develop­ ment. Since the war, the government has produced several long-range economic plans. In 19U7> the Economic Recovery Plan was introduced.

^Okita, Saburo, Shotokn Baizo Keikaku no Kaisetsn (Commentary of Income Doubling Plan) Nihon Keizai Shinbunsha, Tokyo: I960.

203 ZOÜ

In. 1955 the Five-Year Plan, for Economic Independence was offered, according to which the expected average annual growth rate of the

Japanese economy would be 5 P@r cent. Since the Japanese economy grew much faster than expected, this was replaced by the New Long-

Range Economic Plan in 1957. Again the Japanese economy made much more rapid progress than the average annual rate of 6.5 per cent projected in the plan. The plan also expected Japanese exports to expand by an annual average rate of 10.5 per cent, and the imports financed by these exports were expected to allow the Japanese econony to grow at an average annual rate of 6,5 per cent without any balance-of-payments difficulties. Actually, however, the

Japanese economy expanded much faster than expected. Since the price of imported raw materials declined, Japan enjoyed better terras of trade, and could finance a greater quantity of imports for a given quantity of exports. Moreover, Japan obtained foreign capital, and the Japanese economy thus grew much faster than expected with little balance-of-payments difficulties. The goal of the plan was achieved, as far as over-all economic growth was concerned, two years earlier than the five years originally planned. The Ten-Tear Income Doubling Plan, designed to provide guidelines both for the economic policy of the government and the operation of the Japanese economy, was therefore introduced by the government in I960. The ultimate purpose of the plan is to maximize the living standard of the Japanese people while at the same time 2 0 $ providing full employment. In other words, the plan is designed to achieve the maximum possible growth consistent with economic stability;

The plan refers to certain basic problems facing the Japanese economy in the I960’s. (l) There has been a tendency for the increase in consumption to lag behind the rate of increase in investment, creating a danger of overproduction. (2) The production, coefficient has tended to drop, that is, less goods are produced with a given amount of capital, or more capital is necessary for the same units of production. (3) As private capital investment has increased, social capital— highways, harbors, waterworks, etc.— is getting short, and the shortage of these facilities is itself becoming a bottleneck to efficient production. To avoid the danger of overproduction, either the so-called investment multiplier or consumption must be increased. And an expansion of social capital Ëiould lift productive efficiency to a point at which the production coefficient is no longer declining.

In view of such basic problems, the estimated possible average

annual rate of economic growth in the ten-year period between 1961 and

1970 was computed by the planners to be between 6.$ per cent and 8 per cent, sustained by an average investment increase of 9 and 10

per cent per year. Two major factors are operating in the field of

imports, one of which— the shift to the heavy and chemical industries

— tends to reduce their value with less dependency on imported raw

materials, idiile the other— increasing trade liberalization— tends to

increase it. The ratio of the value of imports to national income is 206 estimated to be 16.7 per cent in 1970, and the ratio is expected to be higher in the first half of the period than in the second half.

The value of exports depends not only upon Japan's domestic economic condition but also upon the trend of the world trade and the economic conditions of foreign countries. The plan estimates that world trade may be expected to increase by an average annual rate of

U.$ per cent in the ten-year period, as compared with an actual growth rate of world trade of 6.2 per cent in the 19^0's. From such estimates and the past performance of Japanese exports, Japanese exports are expected to increase by an average annual rate of between 9 and 10 per cent in the ten-year period, compared with 16 per cent in the

19^0's.

Goals of the plan for economic growth

To realize the ultimate purpose of the plan, the following major objectives have been set: (l) Expansion of social capital; (2) transformation of Japanese industry toward industries with higher productivity, that is, toward the heavy and chemical industries; (3) expansion of foreign trade and promotion of international economic

cooperation; (U) encouragement of technological innovation and

development of the human skills necessary for its efficient use; and

(5) mitigation of the "dual structure" of the Japanese economy and promotion of social security.

In view of such objectives and estimates of future economic

trends, the Japanese government has decided to double the real gross national product in the ten-year period. The gross national product 207

of 1970 in 19^8 prices is expected to amount to 26 trillion yen, double the gross national product of 13 trillion yen in I960. To achieve this, an average annual rate of increase in the gross national product of 7.2 per cent must be sustained. The actual growth rate can never be expected to be identical with this average rate in any given year, and it is expected that the growth rate will be higher in the first half of the ten-year period and will then slow down in the second half. If the goal of the gross national product in 1970 is compared with that of the base period, that is, the average amount of real gross national product of the period 19^6-19^8 in 1958 prices, the average annual growth rate is expected to be 7.8 per cent. The plan's major economic indicators

in 1970 are shown in Table 1+7 • National income is estimated to increase to21.3 trillion yen in 1970, which is 2.7 times as large as that of the base period. The per capita national income will be 208,601 yen in 1970, as compared with 87,736 yen in the base period. According to the current foreign exchange rate of 360 yen to 1 American dollar, the expected per capita national income in 1970 will amount to 579 dollars, as compared with 299 dollars in 1959 for Japan, 2,232 dollars for the United States, and 869 dollars for West Germany. When the distribution of the national income among the various productive sectors of the economy is considered, the plan expects that the share of the primary industries (agriculture and fishery) will decline to 10.1 per cent of the total national income in 1970, as

compared with I8.8 per cent in the base period. On the other hand. 208

Table U7 Major Economie Indicators of Ten-Tear Income Doubling Plan Base period (A) Annual rate Indicators 1956-^6 average 1970 (B) B/A, % of increase, % Population (million) 91.1 102.2 112.2 0.9 Gross national product (billion yen) 9,7là 26,000 266.8 7.8 National income (billion yen) 7,99k 21,323 266.8 7.8 Per capita national income (yen) 07,736 208,601 237.8 6.9 Personal consumption (billion yen) ^,798 15,117 260.7 7.6 Per capita personal consumption (yen) 63,636 1U7,883 232.U 6.7 Gross investment (billion yen) 2,9U7 8,283 281.1 8.2 Industrial production level (Index) 100.0 U31.7 U31.7 11.9 Exports (million dollars) Customs statistics 2,701 9,320 3U5.1 10.0 Foreign exchange statistics 2,68? 8,U85 315.8 9.3 Inports (million dollars) Customs statistics 3,126 9,891 316.U 9.3 Foreign exchange statistics 2,5U9 8,080 317.0 9.3

1. Values are expressed in 19^8 prices, except for exports and imports in current dollars» Source: Shotoku Baizoo Keikaku no Kaisetsu, p. 175.

the share of the secondary industries (mining, manufacturing, and construction) will rise from 33*3 per cent in the base period to

38.6 per cent in 1970. The service industry will also increase its share, from 37.8 per cent in the base period to 39.8 per cent in 1970. The average annual growth rate in income is estimated to be m 2.8 per cent In pxlnary industry, 9 per cent in secondary industry, and 8.2 per cent in the service industry. The growth in importance of secondary industry will be reflected in the growth of its labor supply which is estimated to increase to 32.2 per cent of the total labor force in 1970, æ compared with 214..U per cent in the base period. The proportion of labor employed in Üie service industry (including utilities) will also rise, from 36.2 per cent in the base period to I4I4.I per cent in 1970. On the other hand, the labor force in primary industry will decline from 39.6 per cent of the total in the base period to

23.7 per cent in 1970. The total labor force is estimated to increase at an average annual rate of only 1.2 per cent, that employed in secondary industry at an average rate of 3.5 per cent, and that of the service industry at 2.7 per cent. This shift will be at the expense of the primary industries, the labor force of which is expected to decline at an average annual rate of 2.8 per cent. Over population will not be a problem for Japan in 1970; the Japanese economy is expected to encounter a problem of labor shortage. For expansion of production, therefore, an increase in labor productivity will play more important role than an increase in the labor force. Productivity is expected to increase at an average annual rate of ^.6 per cent in the primary industries and at 5*5 per cant both in the secondary and service industries. The production of the secondazy industry in 1970 is expected to be 3.16 times that of 210 19^9, and in the manufacturing industry alone production is estimated to increase by 3.3 times. Sspecial]y, the share of the heavy and chemical industries in the total manufacturing production will increase from 61 per cent in 1959 to 73 per cent in 1970. The shortage of labor and increase in labor productivity is expected to reduce the wide wage differentials between big and small business. Small business firms will be forced to modernize their operation and increase labor productivity without depending on cheap labor in their competition with big business. Thus, the so-called "dual structure” of the Japanese economy will be mitigated. Looking at the gross national product from the demand dide, investment is expected to play an even more important role in economic growth in the ten-year period than it did in the past. The share of investment is expected to amount to 31*9 per cent of the gross national product in 1970, as compared with 30.2 per cent in the base period. The average annual rate of increase in gross investment is estimated to be 8.2 per cent. As pointed out already, the growth rate in investment has been greater than that of consumption and there is a possible danger of overproduction. At the same time, the expansion of social investment has not kept up with the increase in private industrial investment, and this lack of social capital has become a bottleneck for the economic expansion of Japan. The plan, therefore, recommends that public investment by the government be increased faster than the rate of private industrial investment. The share of public Investment in the gross national product in 1970 is expected to amount to 7*9 per cent, compared with 5*6 per cent in the 211 base period. Investnient in private housing is also expected to increase faster than private industrial investment, and its share of the gross national product in 1970 will be 3.8 per cent as compared with only 2.1 per cent in the base period. On the other hand, the share of private industrial investment is estimated to decline to 16.6 per cent of the gross national product in 1970 from 18.3 per cent in the base period. Even thou^ consumption must be increased to keep up with the expansion of production resulting from the increase in investment, personal consumption is expected to increase at an average annual. rate of 7.6 per cent, a little less than the 7.8 per cent of the over-all economic growth rate. Personal consumption and government consumption wLU together account for 67.2 per cent of the gross national product in 1970, compared with 69.8 per cent in the base period. To finance such a large-scale investment, savings must be also increaséd. However, the share of personal savings is estimated to decline to 33.1 per cent of the total savings in 1970 as compared with 36.2 per.cent in the base period, because it is expected that people will spend a greater portion of their income for consumption. On the other hand, corporate amortization and profit reserves are estimated to rise to 1*7.3 per cent of the total savings in 1970 as compared with 1*3.8 per cent in the base period. Goyemment expenditures in 1970 are expected to be twice those of the average for 1956-19^8. But the share of the government expendi­ tures in the gross national product in 1970 will be reduced to 21 per 212 cent, as compared with 27*5 per cent in the base period. The government's consumption expenditure in 1970 wi U amountto 1*3,1 per cent of its total expenditures, as compared with U7.1i per cent in the base period. While the government's consumption will be reduced proportionally, the government's investment expenditure will increase to 39 per cent of its total expenditures in 1970 from on]y 27 per cent in the base period.

Goals concerning the balance o i paymenEs In order to achieve the planned economic growth in 1970, Japan has to increase its import of materials necessary for the expansion of the econoay, and at the same time, increase exports sufficiently to finance such imports. But since the balance-of- payments condition has been one of the crucial limiting factors in the economic growth of Japan, both exports and imports have to be increased without inducing any balance-of-payments crises. Before the goals concerning the balance of payments were set, the planners made certain assumptions: 1. World trade will increase at an average annual rate of per cent, as compared with 6.2 per cent in the 19^0's. The merchandise composition of world exports will continue to shift to the heavy and chemi­ cal industries. 2. liberalization of trade and foreign exchange policies will be further extended among many countries. 3* The economic development and indust rializati

6 . Japan will increase its ability to export and improve its competitive position in the world market. In order to achieve a gross national product of 26 trillion yen in 1970 Japan will have to import89 billion of goods from abroad in that year, about 3.2 times as much as in the base period. The ratio of imports to the national income will be 16.7 per cent, as compared with II4.I per cent in the base period. On the other hand, Japanese exports are expected to increase to $9.32 billion in

1970. To achieve this, the value of Japanese exports must increase at an average annual rate of 10 per cent. The share of Japanese exports in the world trade will rise to ^.6 per cent in 1970 as compared with 3.U per cent in 19^9. These estimates of both imports and exports are based on calculations from customs office statistics. If the totals are figured on the basis of foreign exchange transactions, Japan's payments for imports in 1970 will amount to $8.08 billion, 2.06 times the I960 import figure of $3.92 billion. Japan's receipts from exports will amount to $8.U9 billion in 1970, which is 2 .II4. times the I960 exports. Though Japan expects to have a favorable balance of $hlO million in the merchandise trade in 1970, in all other items of the current account Japan's payments for invisible 211» imports are estimated to rise to $1.^1» million, tdiile Japan's receipts will amount to $1.31 billion. Thus, in the current account Japan expects to have a favorable balance of $l8o million in 1970, as shown in Table 1»8.

Table U8 Estimated Japan's Balance of Payments in 1970 (In billions of dollars) Itan Receipt Payment Balance Current account Merchandise trade 8.1,9 8 .0 8 O.Ul Others 1.31 1.^1» -0.23 Total 9.80 9.62 0.18 Capital account Long-term 0.^9 -0 .0 5 Short-term -- 0.07

Over-all balance * 0.20

Source: Shotoku Baizoo Keikaku no Kaisetsu, p. 182.

In the capital account, on the other hand, Japan's receipt of long-term capital from abroad will amount to $$!»0 million in 1970 while Japan's payments will amount to $^90 million, leaving the negative balance of $$0 million. At the same time, Japan will have a positive balance of $70 million in the short-term capital account, and will therefore have a net positive balance of $20 million in the capital account in 1970. Thus, Japan is expected to have a net favorable balance of $200 million in the over-aU balance of payments in 1970. Japan is also expected to have at 2 # $3.$ billion in foreign exchange reserve by the end of 1970, equiva­ lent to about one-third of the value of Japan imports in that year. Judging from the trend of the world trade and Japan's shift toward the heavy and chemical industries, the machinery industry must play a major role if Japanese exports are to meet the 1970 objective. In 1970 machinery export will amount to $3>9 billion, more than four times the value of that of 1959, and its share of the total Japanese exports will amount to Ul>3 per cent in 1970 as compared with 26 per cent in 1959. At the same time, the share of the heavy and chemical industries in total exports will amount to 53«5 per cent in 1970 as compared with only UO.6 per cent in 1959. MLscellaneous products of light industry will account for 12.9 per cent of the total in 1970, as compared with 12.7 per cent in 1959, neither gaining nor loosing in importance. On the other hand, the share of textile product will continue to decline from 29.5 per cent of the total exports in 1959 to l8.$ per cent in 1970. As for the geographical distribution of Japanese exports in 1970, the share of such advanced countries as those of North America and the European nations will increase from 35.6 per cent of the total exports in the base period to U5.8 per cent in 1970, with the dollar amount of exports to such countries quadrupling over the base period. On the other hand, the share of underdeveloped nations in total Japanese exports will decline from 61.14. per cent in the base period to k9 per cent in 1970, since the balance-of-payments condition in those countries will remain difficult and unstable. The share m of communist countries is expected to amount to about $U80 million, 5*2 per cent of the total Japanese exports in 1970.

In the merchandise composition of Japanese imports in 1970, finished products will increase their share of the total imports to

23.6 per cent compared with 11.8 per cent in 19^9, because the trade liberalization policy of the Japanese government will permit more imports of machinery and consumer goods. The share of mineral fuels will also increase, from 17.U per cent of the total imports in 19^9 to 18.8 per cent in 1970. As for the import of raw materials, the share of iron ore and other raw materials for nonferrous metal production will rise from 13.7 per cent in 19^9 to lU.9 per cent in

1970, while the share of raw materials for fabrics will decline considerably from 19.6 per cent of the total imports in 1959 to only

11.U per cent in 1970. The share of all raw materials in total imports is expected to decline from 50.2 per cent in 1959 to 38*3 per cent in 1970. In the geographical distribution of Japanese imports, North America is still expected to be the most important source of Japanese imports in 1970. But the necessity of increasing exports to Europe also requires Japan to import more from European countries. Imports from Europe amounted to 10 per cent of the total in 1959, and this figure is expected to rise. The share of Southeast

Asia, on the other hanc^.is expected to decline below the 16 per cent of 1959. 217 ^temational econonic coopération iox gnderdeveloped nations Cooperation between Japan and the onderdeveloped nations will be very Important in 1970, both for the development of the economies of these countries and the increase of Japanese exports and raw material Imports. Such economic devices as Japanese direct foreign investment, supply of long-term credit, and exports with postponed payments, will become more Important in the future. Japan's direct investment in the area will amount to 3*5U billion dollars in the ten-year period of the plan, and 63O million dollars in 1970 alone. At the same time, in order to help underdeveloped nations to obtain the necessary capital for investment and to increase Japanese export of capital goods to these nations, the amount of long-term capital to be supplied from Japan, including both government loans and payment postponement for Japanese exports, is expected to amount to 1.^ billion dollars in 1970. Thus, Japan's direct foreign investment and supply of long-term capital for underdeveloped nations will amount to 2.13 billion dollars in 1970. Exchange of students and technical personnel between Japan and the underdeveloped nations w.11 also be emphasized in the future. All together, Japan's expenditures for international economic cooperation will amount to 2.9 per cent of the total gross national product in 1970, a twenty-fold increase over the base period.

Summary The Ten-Tear Income Doubling Plan estimates that the real gross national product in 1970 will be twice as large as that of

i960 , and the average annual economic growth rate is expected to be as 7.2 per cent. To achieve this goal the level of Industrial produc­ tion in 1970 will have to be 3.16 times as hl^i as that of 19^9, and both exports and imports be more than doubled as compared with those in 19^9* The ultimate purpose of the plan is to raise the standard of living of the Japanese people as much as possible and at the same time to make progress toward full employment, which requires fairly rapid and stable economic growth. The fiscal and monetary policies adopted by the Japanese government and the central bank are expected to play an even more important role than in the paiat. CHAPTER T M

JAPANESE ECONOMY IN THE EARLY I960'8

Tjto w o r M trend toward trade liberalization and Japan The 1958 Annual Report of the Organization for European Economic Cooperation pointed out that the remarkable recovery and development of the world economy would not have been possible without a great development in international trade, and that this trade expansion would have been impossible without the trade liberalization policies adopted by these European nations. The success of these polocies suggests that the extension of trade liberalization to the rest of the world is one of the most effective ways to promote the economic development of individual nations. The OEEC was established in 19U8 by l8 European countries as a first step in economic cooperation and trade liberalization among the member states. To handle settlement of trade balances among these nations, the European Payment % i o n was established in the same year. By the end of 19h9 about $0 per cent of interbloc trade of the EPÜ countries was free of import restriction, and the

219 220 figure was raised to 89 per cent by January, 1 9 ^ 7 In 195U> the policy of trade liberalization was further extended to include such nations in the dollar area as the United States and Canada. When most European countries restored the convertibility of their currency on current-account transactions at the end of 1958, cooperation among member states was greatly facilitated, and most exchange restrictions on imports from dollar areas were dropped.

A further step toward economic unification was taken in 1958 with the establishment of the European Common Market by France, West

Germany, Italy, Belgium, the Netherlands, and Luxemburg. By the end of 1962, 96 per cent of merchandise trade among the OSEC member states and 92 per cent of their imports from the dollar areas had 2 been liberalized.

Thou^ the world trend toward trade liberalization made a change of policy imperative for other industrial nations, Japan was not economically ready for such a program until 1959. Japanese foreign trade was expanding rapidly in the 1950's, but foreign exchange transactions remained under strict control of the govern­ ment and imports were permissible only within the framework of the government's foreign exchange budget and the import approval system.

At the end of 1959 only 31 per cent of the total imports were under the Automatic Approval System. At both the annual conference of the International Monetary Fund and the meeting of GATT in 1959,

^anaka, Hiroshi, op. cit., p. 95- ^Loc. cit. V 221 Japan's system of import restriction was severely attacked by many

other nations. As a raonber of GATT and IMF, Japan was required to

remove import restrictions and foreign exchange controls when she had a reasonable amount of foreign exchange reserves. This was not

simply a matter of improved international relations because the

removal of restrictions and the expansion of imports were necessary

if Japan were to sell more abroad.

Since the Japanese economy, however, was adjusted to the

traditional government protection of domestic industries, a full-

scale and immediate change in policy would have created economic

chaos. To modify gradually market condition, therefore, the

government announced the Three-Year Plan for Trade and Foreign

Exchange Id.beralization in early I960.

Japan's liberalization program

The liberalization program of the Japanese government consists

of three parts: liberalization of import policy, removal of restric­

tions on foreign exchange transactions on current account, and

liberalization of capital movement to and from Japan.

1. Import liberalization

As already explained in Chapter Ei^t, imports have been

primarily controlled by the government's foreign exchange budget and

the import approval system. The government announced in i960 that

within three years about 90 per cent of Japanese imports would be put

under the Automatic Approval System, and at the end of 1962, 88

per cent of the goods imported were in this category. Major items 222 still under government import restrictions were agricultural products, nonferrous metals, large power generators, electronic computers, heavy construction machines, and automobiles.

2. Foreign Sxchange liberalization

Japan's foreign exchange control has been gradually mitigated. The convertibility of Japanese currency was restored in

J%Cly, i960, for nonresidents' holding of yen. In April, 196b,

Japan became a nation which, according to the 8th article of the

IMF charter, is no longer permitted to control foreign exchange

transactions on current account to adjust its balance of payments.

Certain indirect controls remain, however. Japanese citizens, for

example, are now allowed to travel abroad for pleasure, but such

travel is limited to^a maximum of one trip per person per year, and no more than ^00 dollars may be taken out of the country besides

transportation expenses payable in Japanese currency. Even though

ttie IMF has expressed its objection to such controls, the Japanese

government continues to use such methods of indirect restrictions

of foreign exchange transactions.

The remittance of profits on foreign investment in Japan and

the payments of royalties for technological assistance can now be

made freely since such transactions belong to the current account.

But, the original approval of the purchase of patent rights and other

technical assistance contracts remains with the government under the

Foreign Investment Law.

llbid., p. 121. 223 Since basic restrictions on foreign exchange transactions

on the current account have been abolished, the government no longer

issues a foreign exchange budget. But, it continues to make public

estimates of receipts and payments, thereby keeping the problem

before the public and encouraging businessmen to behave in the

national interest.

3. Liberalization of capital movements

Ultimately, the present program aims at the removal of all

restrictions on both export and import of capital. But Japan is not

yet in a condition in which it can lift all controls, and the third article of tiie IMF charter guarantees to member nations the right to

•impose necessary restrictions on the international flow of capital.

Since the government wishes to attract foreign capital, it

has eased restrictions somewhat, and plans a further liberalization.

But importation projects of foreign capital must still be approved

by the government, and the principal must remain at least for two

years before being repaid in a minimum of three annual installments.

The remittance of profits, principals, and royalties for such approved

projects, however, is now guaranteed by the Japanese government.

Restrictions on the export of capital remain more severe, and free

investment by Japanese citizens abroad may not be expected for many

years.

Economic growth

The Japanese economy continued its rapid growth in I960 and

1961, The gross national product increased from 12.6 trillion yen in 22U

1959 to Hi-.? trillion yen in I960 and 17.7 trillion yen in 1961. Since the comprehensive price index— idiioh is to be used as a deflator for national income— rose by 2.5 per cent in I960 and 6.2 per cent in

1961, the rate of increase in real gross national product was 13.3 per cent in I96O and lU per cent in 1961. Per capita national income in

1961 amounted to 1U6,036 yen, a little over UOO dollars in U, S. money, as compared with a per capita national income of 2,310 dollars for the United States in the same year. The real per capita national income of Japan increased by lU.8 per cent in I960 and 11 per cent in 1961.^

One of the main factors responsible for such continuing rapid economic growth is investment. According to national income stati­ stics, the total domestic private investment amounted to 29.1 per cent of the gross national product in I960 and 33 per cent in 1961, compared with I8.3 per cent in 1958 and 26.2 per cent in 1959.

Government investment expenditures also increased their share of the gross national product from 8.9 per cent in 1959 to 9.1 per cent in

1960 and 9.7 per cent in 1961. The total investment in real terms increased by 2^.9 per cent in I960 and 2 8 . per cent in 1962.

Private investment for plants and equipment is particularly impressive as it increased by 38 per cent in I960 and 26.U per cent in 1961.

This steady increase of investment in plants and equipment over the years since the 1950’s has increased the productive capacity of

Japanese industries, and the personal consumption in real terms has

^Keizai Yooran 196L, pp. 2^-32. 22$ been increasing continuously by more than 9 per cent every year.

Furthermore, Japanese exports increased by 17.lt per cent in I960 and by U.? per cent in 1961.^

This increase in demand for investment, consumption, and exports raised industrial production by 2$ per cent in I960 and

19.lt per cent in 1961. However, imports increased by $1.32 billion in 1961, while the exports increased by only $180 million.

According to foreign exchange statistics, the resulting deficit in the merchandise trade caused an unfavorable balance of $1,08^ million on the current account in 1961. Japan's net receipts in the capital account amounted to $773 million in that same year, however, and therefore the comprehensive balance in Japan's balance of payments was a net payment of $338 million in 1961, as compared with a favorable balance of $#02 million in I960. Japan's foreign exchange reserve declined from $1,82U million at the end of I960 to $1,^86 million at the end of 1961.^

To correct this situation the Bank of Japan tightened the money market by raising its rediscount rate (except for exports) from 6.57 per cent to 6,9h per cent in July, I96I, and again up to

7 .3 per cent in September. The government postponed its payments for construction expenditures and raised the currency or bond

deposit rate required for import application. As in the 19^3 and

19#7 balance-of-payments crises, the monetary policy of credit

'4iOc. cit.

^Ibid., pp. 96-97 and I8h-l87. 226

restraint was the most effective measure in improving the balance of payments in 1961 and 1962. With a tight money policy in effect, the

•wholesale price index declined from 101 in 1961 to 97.3 1962

(1962-100), and Japan's foreign exchange payments for merchandise

imports were $378 million less than in 1961. On the other hand,

in order to expand Japanese exports, in July, 1961, the Bank of

Japan lowered its rediscount rate for commercial paper resulting

from export business. Japan's receipts of foreign exchange from

exports rose from $3,993 million in 1961 to $1|,787 million in 1962,

and there was a net receipt of $2lil million in the merchandise trade

in 1962.1

Industrial production in 1962 increased by only 7.9 per

cent as compared with an increase of 19.it per cent in the previous

year, and the total amount of real investment dropped hy 3*6 per

cent. Wi'bh this decline in investment, the economic growth rate s3ared

from lit per cent in 1961 to 6.9 per cent in 1962, even though exports

increased by 16 per cent and the real consumption by 8.6 per cent in

1962. However, "the average annual economic growth rate in the three-

year period of the early 1960's remained an impressive 11.7 per cent.^

Balance of payments

The balance of payments for I960, 1961, and 1962 are shown in

Table U9. In the merchandise trade there was a favorable balance of

#268 million in I960, but in 1961 a deficit of $569 million. The

^Keizai Yooran 1961t, p. 186,

^Ibid., pp. 30-33. 227

Table 1(9 Balance of international Payments Japan, 1960-1962 (In millions of dollars)

1960 1961 1962 Current transactions IteceTpVs Payments Balance Receipts Payments Balance 1. Merchandise 3,978 3,711 268 l(,ll(9 1(,707 -559 1(,860 W 5 9 1(01 2. Non-monetaty gold 1 1 1 1 1 1 3. dipping 318 987 -269 355 830 -1(76 389 800 |. Insurance 6 21 - 19 8 28 -2 0 9 21( - 1 5 9. Foreign travel 1(0 la - 1 1(7 53 - 5 1(8 1(8 0 6. Investment income 80 U 3 -3 3 96 -1(8 107 199 -9 2 7. Government transactions l(2l( 18 1(06 1(01 19 382 391 2!( 366 8. Others 80 268 -188 n o 326 -216 ■ -268 âub-iotai (Items 1-8) . A 00 Jf r u 9. Unilateral transactions Private 61 6 5$ 65 7 57 « 10 55 Government 1 81 - 8 o 7 106 -99 1 86 - 8 5 Total of current transactions H I M w TB 5 ; ® 1 8 Error and omission 33 19 6 Final balance of current transactions -9^3 1 5 Moveinents of capital and monetary gold Assets liabilities Net assets Assets liabilities Net assets , Assets liabilities Net Assets 1. Private long-term capital 31(5 61 83 266 229 la 292 1|39 11(6 2. Private short-term capital - 2 -17 16 15 36 - 2 1 " 11 96 -108 3. Government 26 56 30 la 7l( ■33 13 20 - 7 L Central Bank 1(89 -1 6 501 -356 1(3 -399 339 109 233 9. Other financial institutions 202 596 -39l( 230 782 87 101 “ ” Totil“ ...... 1 5 5 1 8 Ü T 7 5 % w H? W

(l) Total may not be equal to the sum of items because of rounding. Source: Keizai looran 1961(, pp. 10!(-199. 228 tight money policy of the Bank of Japan and the governmentrestored a favorable balance of #1^01 million in the merchandise trade in 1962.

Japan's receipts from U, s. Special Procurement have continued since the 1960's, amounting $l!p.3 million in I960, $389 million in

1961, and $377 million in 1962. On the other hand, in most of other accounts of current transactions, such as shipping, insurance, foreign travel, and investment profits, Japan continued to have an unfavor­ able balance every year. In the current account as a idiole, on2y i960 had a favorable balance of $lU3 million, with a net payment of

$982 million in 1961 and $8 million in 1962.

As for the market composition of Japanese merchandise trade, particularly, the share of Europe in the total value of Japanese exports continued to rise from 11.U per cent in 19^9 to 13.2 per cent in i960, Hi.3 per cent in 1961 and 17.2 per cent in 1962.At the same time, the share of Europe in the total value of Japanese imports also continued to rise from 10.9 per cent in 19^9 to 13.6 per cent in

1962. On the other hand, the share of Asian countries in both

Japanese exports and imports has shown a declining tendency. In 1962 the Asian share of Japanese exports was 3h per cent compared with

39.9 per cent in 19S7 and 36 per cent in I96O. The share of Asian nations in Japanese imports in 1962 was 28 per cent as compared with

31.7 per cent in 19^9. The increasing tendency of Japanese merchandise trade with European nations and the declining tendency 2Z9 with Asian countries had been expected in the Ten-Tear Income n Doubling Plan, and the tendencies are expected to continue.

In the commodity composition of Japanese trade, a particular3y notable trend in the 1960-1962 period was a decline in the share of

raw materials in the total value of Japanese imports. It dropped from

U9.2 per cent in 1959 to U2.5 per cent in 1962. On the other hand,

the share of manufactures in Japanese imports increased from 21.3 per cent to 25.8 per cent largely because of the government's trade 2 liberalization program.

According to the foreign exchange transaction statistics

shorn in Table 50, Japan had in the current account a favorable

balance of $111 million in I960 and $38 million in 1962, with an

unfavorable balance of $1,08^ million in 1961. Import of capital,

however, produced net receipts of $l4ll million in I960, $773 million

in 1961, and $U3U million in 1962. Since interest rates in Japan

were so high and the government had restored convertibility of the

yen for non-residents in I960, foreign short-term capital poured into

Japan and amounted to a net-inflow of $U09 million in I960, and $610

million in 1961. Disturbed by the possibility that an oversupply

of foreign short-term capital might make effective control of interest

rates by the central bank difficult, the government warned commercial .

banks against accepting large amounts of foreign short-term capital.

Thus, the net inflow of such funds in 1962 declined to $172 million,

^Keizai Yooran 196U, pp. 192-193- 2 Loc. cit. 230

Table ^0

Reoeipts and Payments of Foreign Exchange and Foreign Exchange Reserve, Japan, 1960-1962

(In millions of dollars)

Transactions 1960 1961 1962

Current transactions Merchandise exports 3,8?U 3,993 1*,787 Merchandise imports l*,92U Balance - 931

Receipts in other items 7lU 781+ 812 Parents in other items 750 938 1,017 Balance ” - 36 - 151*

Balance of current account 111 -1,085 38

Capital transactions Receipt of long-term capital lUU 319 1*58 Payment of long-term capital 1U2 156 196 Balance 2 163 "262

Balance of short-term capital transactions 1*09 610 172

Balance of capital account hll 773 1*31*

Over-all balance 502 - 338 355

Foreign exchange reserve at year end 1,821* 1,1*86 1,81*1

Source: Keizai Yooran 196L, pp. 186-18?. though a net inflow of long-term capital in 1962 of $262 million, raised the total net inflow of capital to $U3U million. This continuing net inflow of foreign capital increased the comprehensive balance of Japan's international payments to net receipts of $502 million in I960 and $355 million in 1962, and enabled Japan to meet about two-thirds of the large deficit of $1,085 million on current 231 account in 1961, leaving a net payment of $3^^ million in the over-all balance. Thus, Japan's foreign exchange reserve rose from $1,322 million at the end of 1959 to $1,821*. million at the end of I960, then dropped to $1,1*86 million at the end of 1961, and finally increased up to $1,81*1 million at the end of 1962.

Comments on the Ten-Year Income Doubling M a n

The history of the Japanese economy during the first three years of the 1960's offers an opportunity both for comparison of actual and projected development and for criticism of the way in which the plan has been implemented in practice. The actual annual average growth rate of the Japanese economy for the period I960-

1962 amounted to 11.07 per cent, as compared with the 7.2 per cent expected in the Ten-Tear Income Doubling Plan, Even for 1961 and

1962 the average rate of economic growl^ was 9.95 per cent. This does not necessarily mean, however, that the goals of the Ten-Year

Plan have been set too low, for it must be remembered that the economic growth rate was expected to slow down over the decade and such a high rate at the beginning may be necessary if Japan is to maintain an over-aH annual average rate of 7.2 per cent for the ten-year period. In the actual implementation of the plan serious criticisms center around the rise in the consumer price level. The projections were based on an assumed stable price level, and the maintenance of such stability was. considered an indispensable condition for success. 232

Actually, however, the consumer price index for cities increased by 5.3 per cent in 1961 and 6.8 per cent in 1962, irtiile the consumer price index for farmers rose U.6 per cent and 6.3 per cent in the same years. The government is defending its economic policy by pointing out that the wholesale prive level remained stable, increasing by only 1 per cent in 1961 and declining by 1.7 per cent in 1962. In addition, the real wage index for industrial workers increased by 5.9 per cent in 1961 and 3.5 per cent in 1962, and the consumption level index increased by 6.9 per cent and 6.0 per cent, respectively. Despite the rise in real income, however^ acceptance of the inevitability of a gradual rise in consumer prices is in direct contradiction to the original plan.

The rapid expansion of industrial production, especially in big business, has attracted more workers to the better paying

companies and forced smaller firms to raise wages to remain competi­

tive in the labor market. The increase in wages in service

industries has been particularly steep and is considered the main

factor in the rise of the consumer price level.

Some hope is offered by the continued rise in labor

productivity; that of the manufacturing industry, for example,

increased by 10.3 per cent in 1961 and 15.8 per cent in 1962. The

surplus value so generated could be used to increase profits, to

raise wages, or to lower the prices of the goods produced. Were the

last alternative accepted, the consumer price level would have

^Ibid., pp. 222, 232, and 257. 2 3 3 remained stable, at least, rise .very slowly. It may be severely questioned, however, idiether the actual price policies adopted by the government favor this approach, or as critics have alleged, they tend to divert the productivity surplus exclusively to the profit of business firms and higher wages.

Other criticisms of the plan concentrate on the side effects of rapid economic growth: increases in national income have been matched by increases in the crime rate; a massive traffic and trans­ portation problem has developed and a general breakdown in traditional

Japanese values has occurred. Would it not, these critics ask, be wiser to slow down the rate of economic growth and concentrate on these new social problems? The difficulties are real, but the solution is not adequate. In itself, a slowing of the economic growth rate would contribute nothing— indeed a high growth rate is necessary to provide the capital needed to deal with them. More to the point is the question of the way in which the newly generated wealth is to be distributed, a consideration of the qualitative as well as the quantitative aspects of national prosperity. Japan is beginning to find itself in the dilemma of Galbraith's affluent society— an overdevelopment of the private economy at the expense of the public sector. Of the five major objectives set by the plan, three— the modernization of Japanese industries, •Uie promotion of foreign trade and international economic cooperation, and the advance­ ment of scientific technology and skills— have been effectively promoted, and this success in these fields has made the achievement of the other two— the increase of social capital and the mitigation 23Ü of the dual structure of the Japanese eoonony— more urgent than ever.

Certainly the government must accept more responsibility in these fields than it has in the past.

Further, the government must adopt policies which favor a stable and balanced economic growth rather than a boom-and-recession cycle. The objective of all-out expansion was perhaps inevitable and correct during the period of reconstruction and modernization when the overriding objective was to get the job done by any and every means. But the policies of this period are not appropriate to a more developed economy, which cannot so easily absorb the strain of recurrent crises. Even though monetary and fiscal policies over­ came the balance-of-payments crises of 19^U, 19^7, and 1961, rather quickly, this is no excuse for inviting the recurrence of such crises. The more developed an economy, the greater the necessity for long-term and regular planning of investment, and the more serious the dislocations and uncertainties caused by short-term oscillations in the credit structure. Though maintenance of a stable growth rate is difficult under a free market economy, it is certainly necessary for Japan's continued economic progress, and it is a primary responsibility of the government to assure the stabi­ lity, as is clearly recc^nized in the Ten-Year Income Doubling Plan.

Summary

The world trend toward trade liberalization has forced the

Japanese government to speed up its liberalization prc^ram. At the end of 1962, 88 per cent of the goods imported were under the 23^

Automatic Approval System. The convertibility of the yen for holdings of non-residents of Japan was restored in I960, and Japan agreed to the 8th article of the IMF charter in April, 1961», by abolishing major restrictions oh current transactions.

Japan’s economic record in the first three years of the

1960’s indicates that the Japanese economy is still continuing its rapid growth having an average annual growth rate of 11.07 per cent for the three years, as compared with 9.1»^ per cent in the 19^0's.

Especially, the growth rate was 13.3 per cent for I960 and 11».0 per cent for 1961, and such a high rate of investment expansion as

25.9 per cent in I960 and 28.1» per cent in I96I was one of the major factors responsible for the rapid economic growth. Again, however,

Japan had a balance-of-payments crisis in 1961 with a deficit of

$982 million on the current account. The government’s policies of

credit-restraint and import-reduction overcame the crisis rather quickly, but because of the measures by the government the economic growth rate in 1962 slowed down to 5-9 per cent.

Since the convertibility of the yen was restored for non­

residents in i960, short-term capital poured into Japan seeking h i ^ interest rates. The major portion of the large deficit on the

current account in 1961 was covered by the net inflow of short-term

capital. The value of Japanese exports increased by 17,1» per cent in i960, per cent in 1961, and I6 .O per cent in 1962. Japan’s foreign exchange reserve increased from #1.32 billion at the end of

1959 to #1,81» billion at the end of 1962. CHAPTER EEEVîJî

ST3MMARÏ AND CONCLUSION

During the 19^0*s Japan achieved a more rapid rate of economic growth than any other industrial nation. In the preceding chapters the background, main causes, and international aspects of this achievement were the major subjects of analysis and exposition.

Early economic growth of Japan

Even before the Second World War Japan’s economic growth rate was h i ^ as compared with that of many other countries. The average annual rate between 1872 and 1938 was U.25 per cent while for the latter part of this period, 1913-1938, it was U.5 per cent as compared with 2.0 per cent for the United States and 1,0 per cent for the United-Kingdom.

With the establishment of its mo d e m government in 1868

Japan emerged from a state of economic isolation and agricultural feudalism, becoming one of the leading industrial nations in the world within a relatively short period of time. This rapid economic growth was achieved mainly through the introduction of Western technology and the consequent expansion of Japan's foreign trade.

Japan’s industrial production increased at an average annual rate of

8.92 per cent in the 1901-1938 period. To finance the imports 237 necessaiy for this development the volume of Japanese exports multiplied nearüy 30 times during the $0 years between 1889 and

1 93 8, Japan's share in world exports rose to 9*3 per cent in 1938 idiich made Japan the fourth largest exporter in the world.

The living standard, however, of the majority of the

Japanese people failed to rise as fast as the national output during this early period. A rapid increase in population, a high rate of capital formation, an unequal distribution of wealth and income, and the worsening of the terms of international trade were some of the main causes of the unbalanced development. As a consequence, an expanding Japanese industry had to find markets abroad for surplus products which could not be sold domestically. Frequent depressions and panics afflicted Japan, and war often seemed the only method of stimulating sufficient demand to avoid depression. This also led to an increase in the public debt and inflation. The Pacific War was the final outcome of Japan's rapid economic growth in the prewar period.

Japan's economic recovery and growtk a ^ e r World War II

The end of the Second World War found the Japanese economy in a state of collapse. The real gross national product in 19U6 was

6k per cent of the 193L-1936 level. Industrial production in 19U6 was less than one-third that of the 193U-1936 average. But Japan rapidly restored its econoiqy in the postwar period; the real gross national product reached the 193U-1936 level in 19^1, and the average 236 annual growth rate in idle 19^0's was as high as 9»U$ per cent as compared with 8 .0 U per cent for West Germany. Economists have cited various reasons for this development. Nine major factors, distinct though interdependent, were responsible for Japan's rapid economic growth in the 19^0's. (l) The postwar social and economic changes caused by the defeat and occupation, including the break-up of the Zaibatsu, land reform, encouragement of unionization of labor, complete absence of military spending in the immediate postwar years, and only a small portion of national output devoted for self-defense in the 19^0's were of substantial importance in stimulating economic growüi. (2) In the immediate postwar years Japan's need for foreign exchange was covered to a great extent by U. S, economic aid, and later this source of Income was replaced by the Special Procurement program. The foreign exchange reserves so created enabled the Japanese government to adopt policies for rapid economic grovrtih, which could not have been justified on the basis of the ordinary trade balance alone. (3) The decade of the 1960's was one of expanding world economy characterized by a h i ^ and growing level of world trade with a trend toward liberalization of trade policies in many countries. This growth in international trade in turn opened many new potential markets to Japan. (U) The monetary and fiscal policies adopted by the Japanese government in the 1950's coped effectively with balance-of-payments crises. On the other hand, tdien the foreign exchange reserves were relatively hi^, credit was safely eased, government expenditures raised, and modernization of Japanese industry was greatly promoted. 239 (5) The government policy in favor of modernizing Japanese industry and the Japanese habit of saving ja large proportion of disposaHe income provided industry with the funds necessary for the extremely high rate of plant and equipment investment. The investment booms not only created a great demand for producer-goods but also greatly increased productive capacity of Japanese industry, (6) The moderni­ zation of Japanese industry allowed Japan to close the technological gap which had opened during the Second World War between Japan and the Western industrial nations. The structure of tdie Japanese industry began to displsy the shift toward heavy and chemical industries characteristic of mature industrial development, (7) The abundant labor supply and the dual structure of the Japanese economy allowed the Japanese export trade to develop in two directions, exporting labor-intensive (particularly skilled labor) products to industrial nations and capital-intensive products to underdeveloped countries. (8) Despite the relatively low wage rates, there has been sufficient buying power to allow continuous expansion of the domestic market, the growth in sales of electrical appliances being particularly notable. This "consumption revolution" has in turn created the necessity for expansion of plant and equipment and also increased Japan’s supply capacity for exports, (?) Finally Japanese exporte also expanded more rapidly in the 1950*s, though Japan did not regain its prewar share of world trade in 1959. As is evident, most of the above-mentioned policies and conditions favored the e::q>ansion of Japanese exports, which in turn provided the foreign exchange necessary to sustain economic growth of Japan, 2U0 International trade and eoonoBdc growth The Importance of international trade for Japan’s economic wellbeing is clear, and the condition of Japan's balance of payments is of particular importance for the nation because it helps to determine the growth capability of the Japanese economy. Japan had an adverse balance in the merchandise trade through almost all the period from 1868 to the Second World War.

Until I9II4. the unfavorable balance on the current account was covered by a continuous Increase in its foreign debt. However, the so-called "invisible" trade on the current account, such as shipping and insurance services, was favorable from 1915» on. The total export surplus in this trade amounted to billion yen for the 190U-1936 period and exceeded the total of the excess of merchandise imports over merchandise exports in the same period by UOO million yen. Japan earned most of this by its merchant marine operation. . The par value of the yen was fixed in 1897 at U9.85 cents, approximately two yen to one U. S. dollar. By 1933 the foreign exchange rate of the yen dropped to as low as 2$ cents. Such devaluation of the yen aggravated Japan's import problem, but it was one of the major factors in the rapid expansion of Japanese exports in the prewar period. Except for a short period immediately after the First World War, Japan had been a net debtor country until the early 1930's* By that time, however, Japan's foreign investment— mostly in Manchuria and China— had matured sufficiently to provide a net receipt of 2lil profits and interest payments, thereby making Japan a net creditor country. The Second World War changed radically Japan's situation in international trade and finance. Iramediateüy after the war all Japanese transactions were placed under strict control of the Occupation authorities. Because of the confusion, readjustment, and extreme shortage of comnodities in the immediate postwar economy, the value of merchandise imports exceeded that of exports every year in this period, and the excess of imports over exports was made possible only by American economic aid to Japan. In 19h9 the official foreign exchange rate was fixed at 360 yen to one U. S. dollar, and Japan's international transactions were returned to the control of the Japanese government in 19^0. The outbreak of the Korean War increased the demand for Japanese goods and services by the U. S. Special Procurement Program. This has continued but the dollar amount of the procurement program has declined considerably, Japan met two balance-of-payments crises in the 19^0's, in 1953 and 1957. However, these crises were overcome rather quickly, primarily by credit restraint and the other measures adopted by the Japanese government, Japan had a favorable balance on the current account for six years out of ten in the 1950's. In tlie merchandise trade, only three years out of the ten showed a favorable balance, and the totals for the decade were unfavorable— a net payment of $l,7li8 million. The other two items on the current account, shipping 21*2 and insurance, continued to have net payments throughout the period, and the total deficits amounted to $2.2 billion, more than the deficit in the merchandise trade.

However, Japan’s net receipts in the government transaction account— mostly receipts from the special procurement program- totaled $5,12^ million in the ten-year period, and this covered the large deficits both in the merchandise trade and in the shipping and insurance accounts. The total net receipts on the current account in the decade amounted to $1,132 million and Japan's foreign exchange reserve increased by about one billion dollars in the 19^0's, reaching $1.3 billion at the end of 1999.

An analysis of Japan's merchandise exports and imports based on customs office records indicates that the value of Japanese exports increased in ttie 1990's at an average annual rate of 23.1 per cent, about three times as fast as that of world exports. The value of both exports and imports in 1999 was nearly four times that of the

I93U-I936 average. However, the volume of 1999 exports was only 17 per cent higher than the 193L-1936 level, while the volume of 1999 imports increased by 1*8 per cent over the prewar level. Japan's share in world exports in 1999 was only 3.1* per dent, as compared with

9 .1* per cent in 1938, while Japan's share in world imports in 1999 was also only 3.I* per cent as against I* .6 per cent in 1 9 3 8 .

The average ratio between the value of exports and the gross national product in the 1990's was 13 per cent, as compared with 2l* per cent in the 1930*s. The average ratio between the value of imports and the gross national product in the 1990's was only 12 per 2U3 cent as against 22 per cent in the 1930's. Thus, Japan achieved a higher rate of economic growth in the 19^0's than in the 1930's with a relatively lower level of foreign trade.

One of the major causes of the reduction of the share of exports in the gross national product in the 19^0's is the changing pattern of the commodity composition of the merchandise trade. There has been considerable diversification of Japanese exports with a shift into the heavy and chemical industries. Japan has been increasing the export of commodities which require spending of a relatively smaller per cent of these total values for foreign raw materials as well as commodities which are skilled-labor-intensive products. The relative importance of textiles in Japanese exports has been declining while that of machinery has been increasing

rapidly.

Japan exports labor-intensive (particularly skilled labor) products to advanced industrial nations and capital-intensive products to underdeveloped nations. While 72 per cent of Japanese

exports in the 193U-1936 period were to underdeveloped markets, the

share of advanced countries in Japanese exports has increased in the postwar years, amounting to more than half of all exports in 1999.

On the import side, the Asian share of Japanese imports declined from ^3 per cent in the 193U-1936 period to 33 per cent in 19^9. On

the other hand, the United States' share rose from 25 per cent to

31 per cent. 2 m

Japan has greatly improved its competitive position in the world market in the 1950's. Through a high rate of capital invest­ ment in plant and equipment and a substantial improvement in labor skills, labor productivity in Japan has increased so much that

Japan's relative export prices declined in general as compared wiiii those of most of oüier industrial nations, and the increased demand in the world market for products of heavy and chemical industries has paralleled the development of the Japanese economy. Furthermore, a rise in the standard of living in advanced countries has brought about an increased demand for high-grade consumer goods which has been favorable to Japan where wage rates are relatively low and technical competence of workers is high.

Capital imports and recent capital exports

Foreign investment in Japan has played an important role in the rapid economic growth of the 1950's. Under the provisions of the

Foreign Investment .Law any foreign investments or technological assistance contracts which call for remittance of foreign currency must be approved by the Ministry of Finance. ..From 19U9 to the end of

1959 a total number of 1,023 cases of the introduction of foreign technology were approved, over half of ^ i c h were for the machinery industry. The United States obtained the majority of these contracts.

The amount of royalties Japan paid in 1959 amounted to $5U million.

Since the level of interest rates in Japan is much higher than that of other advanced nations, it would seem logical for the

Japanese to attempt to supplement their domestic capital resources by importing foreign capital. The total amount of foreign capital investment in Japan in the 19^0's amounted to $77^ milil-ion. Loans accounted f ■>r 80 per cent of the total, and the major portion of the loans were granted by the International Bank for Reconstruction and

Development and the Export-Iraport Bank of Washington, Foreign capital invested in Japan has to remain at least two years before the redemption of its principal, which is payable in a minimum of three yearly installments, Japan paid $8^ million in 19^9 as investment profits.

Though Japan still seeks and attracts foreign capital,

Japanese private capital has recently started to move abroad. The total number of cases approved for Japan's private overseas invest­ ment amounted to 807 by the end of I960, The total of this invest­ ment was $357 million, U6 per cent of lAiich was spent in South and

Central America and 23 per cent of which was invested in the United

States. In addition, the credits given to underdeveloped nations by the Japan Export-Import Bank for their payments for industrial plant and equipment exported from Japan amounted to $3U0 at the end of i960, Japan was a net creditor country in the late 1930's but she became a net debtor country again after the war. However, Japan is

expected to become a net capital exporting country for the purpose

of promoting economic progress of underdeveloped nations in the near future. 2 M

Policiea; international trade and finance

Although Japan had been a member of the International Monetary

Fund since 19^2, it was only in April, 196U, that Japan agreed to the

8th article of the IMF charter, which forbids member nations to control current transactions in order to regulate their inter­ national balance of payments. In the 1950’s all foreign exchange obtained by Japanese citizens had to be sold to the government, and the amount of foreign exchange available for merchandise imports and other purposes was determined in advance by the government ’ s foreigi exchange budget. But the world trend toward trade liberalization forced the Japanese government to loosen gradually its rigid foreign exchange and trade control, and in I960 the convertibility of the yen for holdings of non-residents of Japan was restored. Since April,

I96I4., for example, Japanese citizens have been able to travel abroad for pleasure almost at will. About 92 per cent (by value) of all imports are now under the Automatic Approval Sjystem, >hich is equivalent to unrestricted importation. International capital transactions, however, are still under the strict control of the

Japanese government.

Since Japan has been far behind all other industrial nations in its trade liberalization program, Japan has been meeting very severe discrimination against its exports, especially in advanced countries. % t i l very recently such nations as the United Kingdom,

France, the Netherlands, and Spain were applying discriminatory tariffs against Japanese merchandise in accordance with the 35th 2k7 article of the GATT charter. Import quotas are still imposed by most

other nations on such major items of Japanese expol&t as textiles,

chinaware, and sewing machines. Also, the Japanese government

continues to impose voluntary restrictions on Japanese exports.

In order to promote exports the government has developed

such measures as the Export-Import link System, corporate income tax

reduction on profits earned by export, special low rates on bank

loans for the preparation of exports, and Insurance protection on

export risks which are not covered by commercial insurance companies.

As Japan's foreign exchange control has been greatly liberali­

zed recently, the role of tariffs in the protection of domestic

industries has become increasingly important. In accordance with the

world trend toward trade liberalization, tariff rates for many import

items will have to be lowered, though tariff rates on other items may

have to be increased in order to protect infant industries in Japan.

Also substantial improvement of the Japanese tariff system is

necessary.

Economic growth; recent plans and achieTOments

The Ten-Year Income Doubling Plan announced in I960 ly the

government estimates that the real gross national product will double

in the ten-year period between 1961 and 1970 with an average annual

growth rate of 7.2 per cent. The plan is intended to give guidelines

for Japan's economic activity and the government's economic policies.

It sets the following five objectives: (l) expansion of social

capital, (2) transformation of Japanese industry toward the heavy and 2^8 chemical industries, (3) expansion of foreign trade and promotion of international economic cooperation, (U) encouragement of technological innovation and development of the human skills necessary for its efficient use, and (^) mitigation of the "dual structure" of the

Japanese economy and promotion of social security.

In order to double the real gross national product by 1S70, it is estimated that industrial production has to be increased by h*3 times over tiie base period (the 19$6-19^8 average). The gross domestic investment is expected to increase at an average annual rate of 8.2 per cent. To supply raw materials for such an expansion of industrial production, the value of imports is estimated to increase by 3.2 times and exports will have to be increased at about the same rate.

Japan's economic record in the first three years of the i960'8 indicates that the Japanese economy is continuing its rapid growth, having an average annual growth rate of 11.07 per cent for the three years, as compared with per cent in the 19^0's. The real gross domestic investment increased by 29.9 per cent in 1966 and

28.1; per cent in 1961, and this high rate of investment expansion was one of the major factors responsible for the rapid economic growth rate of 13*3 per cent in I960 and lU.O per cent in 1961. Again, however, the domestic investment boom and the resulting rapid growth of the economy brought about a balance-of-payments crisis. The value of 1961 imports amounted to #1;.7 billion, about a billion dollars more than in I960, but the exports in I96 I amounted to $U.l9 billion, an increase of only $171 million over I960. Even thou^ 2k9

Japan earned $302 million from special prodnrement, the net deficit on the current account amounted to $982 million in 1961. This time also the credit restraints and other measures imposed by the central bank and the government overcame the crisis rather quickly and effectively. In 1962 the value of imports declined to $U.U6 billion as compared with billion in 1961, while exports increased to

$U.86 billion from $U*15 billion in 1961, Thus, the balance in the merchandise trade in 1962 was favorable by $U01 million. Because of this credit restraint and the consequent reduction of imports, industrial production increased by only 7.9 per cent in 1962 as compared with 2$ per cent in I960 and 19.U per cent in 1961. The real domestic investment in 1962 was 3.^ per cent less than that of 1961. The economic growth rate therefore slowed from II4. per cent in 1961 to 5.9 per cent in 1962.

Since the convertibility of the yen was restored for non­ residents in i 960, short-term capital poured into Japan seeking high interest rates, with net receipts of $U09 million in I960 and $610 million in 1961. It reached such proportions that the Japanese

government tried to limit the inflow in the interests of economic

stability. However, largely because of this inflow of short-term

capital, the comprehensive balance of Japan's foreign exchange

transactions in 1961 was unfavorable by only $338 million even thou^

there was a deficit of $982 million on the current account in the

same year. Japan's foreign exchange reserve increased frcwj $1.32

billion at the end of 1 9^9 to $1.8U billion at the end of 1962. 2 5 0 Conclusion

Despite the tremendous economic development of the 1950's and its continuance into the 1960's, the problems of price-stability, balance-of-payments equilibrium, and sustained economic growth remain.

Although investment— ^particularly in plant and equipment— has been the single factor mainly responsible for Japan's success, there are

signs that an economy which continues to have from 35 to UO per cent

of its gross national product in the form of capital investment each year risks the danger of excess capacity and overproduction of some

commodities. In addition, capital investment booms have seriously

strained Japan's foreign exchange reserves, and though the govern­ ment's policies have been able to cope with the balance-of-paymentis

crises rather effectively, it should be the government's responsi­ bility to adopt policies for the avoidance of such crises. Hoxrover, a slowing of the investment rate for private capital does not necessarily mean a deliberate slowing of the over-all growth rate. The slack in the gross national product may be taken up in two ways; ty an increase in public investment, or by an increase in. consumption. Though the increase in social capital is one of the objectives of the Ten-Tear Income Doubling Plan, and though the govern­ ment has in fact been increasing such investment each year, it has failed to keep pace with the increase in private capital investment and the resulting insufficiencies in roads, harbors, waterworks, and the like indicate that the government should do more in this area. And though the Japanese are traditionally heavy savers, the very revolution which has brought Western methods of investment and production to Japan has also brought the Western ideal of the consumer- oriented-eoonomy. The demand which has developed in recent years for small household appliances and other consumer durables suggests that

Japanese habits in this respect are already changing. There is eveïy reason to assume that an increase in disposable personal income would bring an increase in the demand for such consumer durable goods as automobiles and refrigerators and for central heating and better hous­ ing, that are now beyond the reach of the average Japanese family.

Japan is probably one of the few countries in the world in idiich a switch in emphasis from investment to consumption would now be a move in the right economic direction. Though it cannot be expected that the Japanese economy will continue to grow at an average annual rate of more than 9 per cent throughout the whole period of the sixties, the goal set in the income doubling plan may well be attained by 1970, if proper measures to expand the lagging sectors of the economy are taken immediately.

But real domestic consumption can hardly be increased without holding the line on consumer prices. Stabilization of the price level is an indispensable requirement for successful attainment of the goal set in the income doubling plan. As continuing economic growth has allowed the bigger industries to expand and attract workers by their higher wages, smaller firms are forced to meet this competition or loose their employees. Hence wages have been rising, especially rather rapidly in the service industry. It has been expected that increasing demand and advanced technology would allow prices to fall for many items of consumer durable goods and other products, but so far they 2^2 have not. It is the government's responsibility to adopt policies tdiich will encourage, or if necessary force, such a development.

Unless Japan further liberalizes its import and foreign exchange control in line with the world trend toward, trade liberalization, it may expect to continue to meet discrimination against its exports. Liberalization will, of course, endanger certain domestic industries and will require a greater degree of specialization in the economy. For as Japan presses closer to the

Western industrialized nations, so too other developing nations are hard on the heels of Japan, enjoying the same advantages in labor-intensive products that Japan herself has been enjoying in relation to the West. Japan's economic prospects are excellent, but the realization of these prospects depends on development by both Japan and her trading partners, of understanding of each other's problems and vrillingness to sacrifice immediate economic advantage in the interests of balanced international economic progress.

Among foreign nations, the United States, as Japan's major trading partner, has the most important role, and it is hoped that it will understand Japan's hopes and aspirations. Japan in its turn, must

be willing to extend the same understanding and cooperation to the

developing countries from which she will soon be meeting competition.

By helping these countries when they need help Japan will be serving

its own long-run interests and contributing to the growth of its own

economy. BZBLKXmAFHT

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BOOKS IN JAPANESE Baba, Eeinosuke, Nihcm Keiaai no Bunseki: Booel^ (Analysis of Japanese , Economy: ï'oreign Trade;, ïokyo: Shunjusha, 1959. 255 Fujli, ailgeMi, K»lg^ Itotten to Booekl Selsata (Economie Development and Foreign Trade Policy)> Tokyo: Kanfmoto Shoboo, 1958* Horie, Kaorn, Eoknaai Pjaoni (international Finance), Tolqro, . Tokyo bw.gaku ^uppankal, I960* Inaba, fiideso> editor, Qendai Nihon Ke l ^ r o n (Analysis of Current Japanese EconoBQr), folgro: Shlaeldo, 1958. Kamiya, Katsuni, Kbjcrsal Shushi to Nihon l^aal Selcho (Inter­ national Balance of Payments and Japan^s J&conomlo Growth), Tokyo: Helbonsha, 1957. Kanamori, Hlsao, Nihon no Booeki (Japanese Foreign Trade), Tokyo: Shlseldoo, W . "----- Kawamura, Reljl, S e ] ^ no Njjhon Kelaal (Postwar Japanese Econooy), Tolqro: Shunjusha, 1966. Eojlma, K i y o ^ , Hüion Booeki to Keizal (Japan's Foreign Trade and Its Economic bevelopmeni), Tokyo* Eunlmoto Bhoboo, 1958. Loclcwood, William W*, Klhon no Atarashll Shlhomshugl (Japan's New Capitalism), Tokyo: blamonisha, 1^6ï|.* , Hatsul, Eiyoahl, editor, Nihon Booeki Dokuhon (Reader on Japanese Foreign Trade), Tokyo: Tooyoo Kelzai Shlnposha, 19ol. Miyake, Takeo, Nihon Krf.zai no Kadal (Problems of Japanese Econody), Tokyo: blamondaha, 1963.' Nagasu, Èazujl. Selchoo felzai no Shindan (Diagnosis of Eoonomio Growth), Tokyo: ôanichl Shoboo, 1962. Nakayama, Ichiro, edit or, Nihon Kelzai no Selchoo (Growth of Japanese Economy), Tokyo: Tokyo Daigaku Skuppansha, I960. Nurkse, Bagnar, Patterns of Trade and Development, Tolyo: Dlamondsba, 1^66. . ' Okawa, Kazushi, Nihon Kelzai no Seiohooritau (Growth Rate of Japanese Economy), Tokyo: Iwanani âhoten, Oklta, Saburo, Nihon Kelzai no Shorai (Future of Japanese Economy), Tokyo: ïuki Èhokoo, l96l. Oklta, Saburo, %otoku Balzoo Kelkaku no Kaisetsu (Commentary of Income doubling Flan),. Tokyo : Nihon Kelz'edl Shlnbunsha, I960, 2$6 Oaehl^ editor, Kihoa Keieal Zaaetau (Graphical Presentation of . Japanese EoonZmy)* ^oj^ox ïwanani Shoten, 19^7* Shinobara, Miyohei, Koodo Seiehoojay Hiiritstt (Secrets of Rapid Eoonomio Growth), toiqro: &üïon feiSSl. Shinbunsha, 1961. Shinohara, Hiyohei, Nihon Keigai Seiohoo to Jonkan (Growth and G ^ l e of Japanese koonosy), Tokyo: ëoobunshajT 1961. Sasaki, Takeo, editor, Nihon no Zalsei (Public Finance of Japan), Tokyo: Shiseido, I960. Talceda, Takeo, editor, Geaadai Nihon Sbihonshugi Tailcei: Zalsei (Modem Japanese Capitalism Series: Public finance), Tolgro: Eoobundoo, 19^8. Tanaka, Hiro^i, editor, HacMJokoku Jldal no N ü ^ feizai (Japanese Eooncmgr oa&er 8th Article o ÿ IMP charier), Tokyo: Diamondaha, 1963. Tatemotom Masahiro, Gaikoku Booeki to Kokuaai Shashi (Foreign Trade and International Balance' of Payments), tokye: Soobonsha,

Tsuchlya, Kiyoahi, editor, EEC to Nihon Keizai (BEG and. Japanese Eoonony), Tolqro: Dlammdsha, 196). . Tsuchiya, Rokuro, Keisai Seiohoo to Kokusai ShasM (Economic Growth and Balance of International Payments^, üfokyç: Chuoo Keizaisha, 1961. . Tsaru, Shigeto and XNcawa, Kazushi, Nihon Kelzai no Bunse^ (Analysis of Japanese. Econ^igr), Tolqro: ^ookei skôSoo^lÿ^^ Ushiba, Hiroshi and others, Jiyuto Dokuhon (Reader of Trade liberalization), Tokyo: Jljl 6hlnposba, I960. Watanabe, Taro, Kotos^ Booeki to Keizai Batten (International Trade and Economic bevelopment), tolgro: âoobim^a, 1956. Yoshimura, Hasaharu, Jiyaka to Nihon Keizai (Trade liberalization and Japanese Èec^ny), tokyo: ïwainumi Shoten, 1961. Yoshino, Toshihlko, W % a Kui^ no Kinya Seido to Kinya Seisaku (Monetary Qystem and Policy oj^ jfapan), Tokyo: Ôhiiseiïïo, 1957. Yanalhara, Tadao, editor, Qenc^ Nihon Shoshi (Short History of Modern Japan), Tokyo: Kizuho Shobo, 1951:. 2^7 Booeki Jlyakmm l^ o n Kelaal e Doo Kaernlte (How la Japanese Eoono^jr . Effected by trade liberalization)^ oonpiled bgr Dlamonddia, Tokyo* 15>60.. Booeki Krowase Jiten (Pioticnary of Foreign Trade and Brohange), Compiled by Research Dept, of Bank of Tokyo, Tokyo: Shiseido, I960. Booeki no Ghishiki (Knowledge on Foreign Trade), compiled by Nihon ' kelzai SHnbnnaha, Tokyo* 1958. Gaikoku Kswwe no Ghishiki (Knowledge on Foreign Exchange), Compiled by keseairdk Bept. of. Bank of Tokyo, Tokyo: Nihon Keizai Shlnbunsha, I960. . . . Oijitau fekushin to Kigyo Keiei (Technological Innovation and Business kanagement),! tirapilel iiy Besearch Dept, of Economic Planning Agency of the goveninent, Tokyo: Shiseido, I960. Junengo no Koknmin Seikatsu (life of Japanese People Ten Tears Ahead), , compiled! by kbkamln Seikatsu ^yokai, Tokyo: Tocyop Keizai Shinpoosha, 1961. Kaisetsu Nihon Keizai Tookei (Comaentary of Japan's Economic Ètatis^ticsj, compiled by Economic Research Institute of Hitotsubashi Daigaku, Tokyo: Iwanami Shoten, 1961. ELnyu norC^sMkl (Knowledge of Money and Banking), compiled by kikon Kelzai Shlnbunsha, Tokyo* I9 6 0 . Kbkumin Shotota Suiteiho (Method of Estimating National Income), .. complied by National Income Section of Economic Planning Agency, Tokyo: Shiseido, I960. Nihon Kelzai Nenkan 19 ^ (Japan Economic Yearbook I960), compiled by . Nihon Keizial Shlnbunsha, Tokyo: I96 O. Nihon Keizai no Sei

PÜBUC DOCTOffiMTS IN JAPANESE The Bank of Japan Honpoo felzai Tookei (Economic Statistics of Japan, Monthly), . to^oi Staiistlcal Division, various Issues. Gaikoku Kawase Tookei Qeppo (Monthly Statistics of Foreign Exchange), Tokyo* foreign ExcEange Control Division, various issues. A Guide to Foreign Investment in Japan, Tokyo: The Foreign Capital Research Society, Japanese government Gaigoku Booeki Gepy> (Monthly Report on Foreign Trade), Tokyo: Mnisiiy of finance, various issues. Gaikoku Booeki Menayo (Annual Report on Foreign Trade), Tokyo: ktnislry of Finance, various issues. Keizai Hakusho (Annual Report on Japanese Economy), Tokyo: Economie banning Agency, various issues. Kelzai Tookei Geppo (Monthly Economie Statistics), Tokyo: Economic ' .Viaxudng Igency, various issues. Kelzai Tooran 196é (itetjor Economic Statistics 1962), compiled fay Economic Planning Agency, Tokyo: various issues. Keizai Tooran 196h (Major Economic Statistics 1961»), compiled by . . . . kconomioTIlann1 ng Agency, Tokyo* Printing Office of Finance Ministry. 2 6 0

Kekuaiii Shotoktt Hakua^ I960 (White Paper on National Income I960), . - !rokyo> Economie i*iaimlng Agency, 1962. Nihon Sai^o no O e ^ o (Annual Surv^ of Japanese indnstxy), Tokyo: Kuoletiy of ïntematlonal Trade and Indnstxy, various Issues. Shotoku B^zoo Kelkakn (]hcome Doubling Plan), Tokyo: Economic ^mm:tng Àgën^, 1961. Tsnsan Tookei Qeppo (MonthJy Report on International Trade and Industry;, Tokyo: Ministry of International Trade and Industry, various issues. Tausho Hakusho (Annual Report on International Trade), Tokyo: Ministry lof International Trade and Industry, various issues. Yushltsumru no Hendoo Tooto no Bnnsekl (Analysis of Factors Affecting «ports and Imports), ïokyo: kconomie Planning Agency, 1962. Other Agencies Qaikoktt Kawye Geppo (Foreign Exchange Monthly), Tokyo: Japan frade Association, various issues. Kalgal a ^ j o Hakusho 196t (White Paper on Overseas Markets 196U), . fokyo: Japan tra3e Promotion Association, I96 U.

ARTICEES Bennett, M. K., "Disparities in Consumption level," American Economie.Review, September, 1951, pp. 632-6^3^ ! ' Gerschenkron, Alexander, "Economic Backwardness in Historical Perspective," Tlte,Progress of Ifaderdeveloped Area, Hoselitz, B. F., editor, Chicago: ckicago Ùniversity kess, 1952. Haberler, Qottfrled, "Integration and Growth of the World Economy," American Eoonomio Review, March, 196U, pp. 1-22. Obkawa, Kazushi and Rosovsky, Henry, "Recent Japanese Growth in Historical Perspective «" American Economic Review, May, 1963, pp. 578-588. : ““ ~ Ihtsui, Kiyoahi, "Some Notes on Japan's Foreign Trade," The Kyoto ïïidversilar Economic Review, I^oto: October, 1957, pp. 19-55» Nakayama, Ichiro, "Japan's Astonishing Economic Growth and the Problems of Maturity," Fortune, New York: August, 196U, pp. U2-56. 261 Shlma, TaauhlkOj "The Income Doubling P r o g m and Public Inweetment," The Broto.%ivereity Economic Seviem, K^tot April, 1961, pp. Trezise, Philip, "The Place of Japan in the Network of World Trade," American Economic Eeview, 1963, pp. ^89-^98. "Consider Japan," London: The Economistj September 1 and 8, 1962. "Prospects Favorable for Expansion of D. S. - Japanese Trade," Report of the 6th U. S. Trade Mission to Japan, Foreign Commerce Weekly, June 6,. i960. "The New Japan," New York: The New York Times, June 2U, 2$» 26, and 27,1963. ■

ARTICLES IN JAPANESE Inoue, Tauyoshi and others, "Shotoku Baizo no Soogo Bunseld." . (Comprehensive Analysis of Income Doubling Program), Chuookooron, Tokyo: May, 196U, pp..250-269. Ohkita, Saburo, "Nihon Keizai no Seicfaoryoku to Shin Choki Keizai keikaku". (Growth Capability of Japanese Economy and. New Long-Range Economic Plan), Klnyu Zalsei Jijo (Hbnetazy and Fiscal Condition), March 16, Ï959* . . Shimomura, Osamu, "Nihon Keizai no Kicho to sono Seichoxyoku" (Basic Condition of Japanese Econony and its Growth . Capabililgr), Kinyu Zalsei Jijo, Tokyo: February, 1959. Takahashi, Kamekichi, "Waga Koodo Seicho no Klhon Yooin" (Basic Factors for Japan's Rapid Economic Growth), Tokyo: Chuookooron, August, 1961, pp. 299-307* Tsuru, Shigeto, "Shotoku Baizo wa Hatashite Kanooka" (Is Income Doubling.Possible?), Asahi Journal, Totyot July 17, 1959. Tsuru, Shigeto, "Baizo Keikaku no Saikentoo" (Reexamination of Income Doubling.Plan),. Asahi Journal, Tokyo: March 31, 1963*

OTHER PUBLICATIONS AND MATERIALS Dodge, Joseph M., Japan: Its Provens. Progress and Re^onsibilities, Address before tke !&8th Annual Banquei oif the American Institute of Banking, New York: February 2, 1952. Druoker, Peter, Japan Tries for a Second Miracle, Washington, D. C. : United Stazes-^apan Trade bouncll, l96). 2 6 2 Bayaahi) HLklo, The Postwar Japaneae Balance of Payment a, M,A. Theala> ÿhe Ôbio State bniveraity, 1^5h* Hemmendinger, Noel, Non-Taiyf Trade ^rriera of l ^ t e d States, Washington, Ï3. Ù. * tfnitedl statea-Jaj^ Trade ÙoîmôlY, lÿtlit. laobe, Aaahiko, The Poaitlon of Mediyi and Si»all-3oeQ.e In^atrlea In Japanese foreign trade and fcoonoale bevelopment, M.A. thesis, the àhio State ünlTeraity, Matsui, Kiyoahi, Etesays on pitematlon^ Trade, Economic Series No. 20, Tolqro: !the Science of ^apan, ^ptenber, 1958. Poaniak, Edmard G., Japan in the World Econow, Washington, D. C. United States-Japan Trade Goonoil, 1962*. Taaaaaka, Tokutaro. The Mstory and Stractnre of Japan’s Small y d Industries, ËoonoBàc Series No, 15, Tokyo: fhe Science ôounciï of Japan, March, 1957. Japan in a Changing World, A Report on Business and Trade, New York; . ïhe t"irst NatlorSl City Bank of New York, September, 1958. Japan in the Free World Economy* New York: Committee for Economic . ïtoTéiopMnt, 1963 •

Monthly C^cular: Survey of Economic Condition in Japan, Tokyo: Mitsubishi Econcmiic Research ïnsiitute, various issues. Oriental Eoonomist, Tokyo: Tooyoo Kelzai Shinpoosha, various issues. Weekly Review, New York: Bank of Tolqro, New York Office, various issues.