Japan, An Economic History: Entering the World Stage

Timeline of Japan's Economic History: An Infographic

World War 1

As the First World War erupted in Europe, Japan made an agreement with its then ally, Britain, that it would enter the war and capture Germany’s Pacific territories. Japanese forces swiftly occupied German Pacific territory and such is testament to Japan’s engineering and industrial capabilities that it is credited with conducting the world’s first naval launched air raids against German held targets in China. With Europe at war, Japan found itself with a free hand in Asia and took the opportunity to extend its influence within China. During the war, Japan filled war material orders for its allies, leading to an export boom that helped to diversify the nation's economy and turn the country from a net debtor to a net creditor for the first time.

As the war ended, Japan’s seat at the top table was secured, with representative Kinmochi sitting alongside the “Big Four” of Lloyd George, Orlando, Wilson & Clemenceau at the Versailles Peace Conference. Japan gained a permanent seat on the Council of the League of Nations and accepted Germany´s Chinese and Pacific territories. Japan had emerged as a great power on the world stage. However, despite its sudden rise to the very top of international politics, Japan felt like it was still regarded as a secondary power after general disarmament measures saw Japan forced to walk away at a disadvantage to its peers.

The Mid War Period

The Bolshevik Revolution in Russia in 1917 unleashed a deluge of left wing consciousness across the world, elements of which took root in Japan. When a new government was elected in 1924, it enacted democratic reforms which increased the electorate from three to twelve million. However, the move was pre-emptively repressed by Japan’s conservative political elite, who days prior to the passing of democratic reform, forced through the Peace Preservation Act which had a counteracting effect, severely restricting personal freedoms. A sustained attempt to crush leftist organisations across the nation followed.

Japan found itself politically dominated by a conservative elite, with world class military and industry capacities. It harboured a lingering distaste at slights from the western powers following the First World War, which was further antagonised when the US signed the 1924 Immigration Act that effectively cut off Japanese immigration to the US. The act relegated the Japanese to the status of other Asian nations in the US´s eyes, who they saw themselves superior to. The reaction was as could be expected. Public opinion was hostile and sustained, with open calls for the start of a race war and demands for a new aggressive rebuilding of the Japanese military.

The Great Kanto Earthquake in 1923 caused much death and destruction in Japan and shattered its infrastructure. Further, The Great Depression between 1928 and 1932 pushed the domestic situation to breaking point. The left was systematically put down by the state while economic collapse brought previously unknown hardship to the people of Japan. Silk and rice exports collapsed and unemployment across the nation exploded. With social conditions being tested to the limit, many started to believe that Japan was being controlled by its ultra-nationalist military via proxy politicians. This suspicion gained traction after the assassination of the Prime Minister in 1931 after his surprisingly successful renegotiation of naval ratio rights, which still was not considered to be enough.

By 1931, it is believed that the Japanese military was operating independently of the government when it invaded the whole of Manchuria after questionable provocation by Chinese forces and set up the puppet state of Manchukuo. The Diet, which was dominated by army officials then voted to withdraw from the League of Nations. Meanwhile, in Europe, having been debilitated by the Treaty of Versailles and the effects of the Great Depression, Germany had too fallen under the influence of an ultra militaristic, racially fuelled fascists, and was also one of the great industrial nations of the world.

Rapprochement: Japan and Germany

Despite the flat-lining of German and Japanese relations following the end of the First World War, the relationship received a lifeline following the initiative of the German ambassador to Japan, who worked to ensure that relationships were slowly rebuilt. During the 1920´s both Japan and Germany changed their direction towards democratic government, but with the Great Depression, both nations reacted to the crisis by embracing militant extremism forms of leadership. As both nations grew closer in terms of style of governance, relations improved to the point of becoming allies. As Japan and Germany became closer, long-standing German relations with China cooled, thus pushing it into the Soviet sphere of influence.

Despite the Second World War officially starting in 1939, Japan was already at war with China in 1937.

World War 2

Despite the Second World War officially starting in 1939, Japan was already at war with China in 1937, and proceeded to launch an invasion against the Soviet Union and Mongolia a year later. In 1940, the Japanese invaded French Indochina in order to prevent the Chinese importation of arms, thus tightening the blockade of China. The next step was the official joining of the Axis powers of Germany and Italy, which intensified Japan´s tension with the United States and Great Britain who reacted with an oil blockade. The resulting shortages saw Japan invade the oil rich Dutch East Indies (Indonesia) and enter war against the US and Great Britain.

In 1941, the Japanese military took the decision to attack US naval forces at Pearl Harbour, thus fueling the US´s motivation for a sustained Pacific military conflict. While the Japanese continued to extend its influence to the Indian border in the West and Papa New Guinea in the East over the following six months, the Allied forces eventually fought back, taking captured Japanese territory. On July 27th 1945, the Allied Powers requested that Japan surrendered unconditionally, or else. The Japanese military rejected this choice outright, and in August, the US dropped two atomic bombs on Hiroshima and Nagasaki. A few days later, Emperor Showa surrendered unconditionally.

The Occupation of Japan and Post War Reconstruction

Following the unconditional surrender of Japan, the nation was occupied by foreign forces for the first time in its history. Led by US and British Commonwealth troops, Japan's reconstruction was modelled on the American New Deal. The San Francisco Peace Treaty of 1951 marked the end of the occupation and the establishment of Japan as an independent nation again, albeit without its previously held territories such as Korea, Taiwan, numerous collections of Islands and Japanese possessions in Micronesia. All such territories were split and put under the influence of the leading regional powers of the Soviet Union, the Republic of China and the United States.

In terms of the outcomes of the occupation, Japan agreed to undertake several changes to its social and political infrastructure. First, Japan was banned from maintaining military forces and renounced its right to declare war. It undertook a process of economic liberalisation which aimed to break down the monopolization of industry. However, with the Soviet threat looming over the region, this measure was later rescinded. However, major land reform followed which saw land taken from mass landowners and sold to farmers at subsidised levels. By 1950, it is estimated that around three million peasants were now landowners, shattering a power structure which had dominated Japan for centuries.

In terms of political reform, a new constitution was ratified in 1946, and drew much of its inspiration from the US Bill of Rights & New Deal legislation, European liberalisation, and even elements from the Soviet Union. The role of Emperor was de-politicised, women became enfranchised, basic human rights guaranteed, the government and cabinet empowered and the police and local government decentralised. The first post war election in 1946 is reported to have had a 79% turn out for men and 67% for women. Other measures introduced during the occupation included the Trade Union Act which protected workers rights, the Labour Standards Act which governed working conditions in Japan, Educational Reform and the prosecution of war criminals.

Economically, Japan´s recovery since World War 2 is often heralded as a miracle by many

Economically, Japan´s recovery since World War 2 is often heralded as a miracle by many. However, when examined, a combination of measures collaborated to cultivate as fertile an environment for economic development as possible. Firstly, the Japanese Government instigated restrictions on foreign business and investment within Japan, while encouraging Japanese industrial development abroad. Further, coupled with the reliance on the United States for defense, Japan was able to focus on economic development and saw its economy rapidly grow. Further, the Korean War between 1950-53 proved a welcome stimulus for fledgling Japanese industry.

The 1964 Summer Olympics in Tokyo are widely recognized as representing the re-emergence of Japan on the international scene with the countries postwar development and reconstruction showcased to the world. During the 1960´s, known as the “Golden Sixties”, Japan´s nominal GDP was estimated at around $100 bln, but with an average annual GDP growth rate of 9.6% during the decade and 4.2% during the 1970´s, this number soon grew to over $1trillion by 1980. Under the ´Iron Triangle´ of bureaucrats, LDP politicians and big business executives, the combination of protectionism, state sponsored industrialization and reliance on US for defense helped Japan in its quest towards economic self sufficiency, full employment, export competitiveness and high domestic demand.

but during the second half of the 1980s, spiralling stock and real estate prices caused the Japanese economy to overheat in what was later to be known as the Japanese Asset Price Bubble.

By 1978, Japan had established itself as the world's second largest economy, but during the second half of the 1980s, spiraling stock and real estate prices caused the Japanese economy to overheat in what was later to be known as the Japanese Asset Price Bubble. The Tokyo Stock Exchange crashed between 1990-92 and the real estate market peaked in 1991. Over the next decade, the crash caused growth to plummet in comparison with other major developed economies, leading to the phrase, “The Lost Decade”.

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