Japan's Economy in the 1970s: Implications for the World

Abstract

B Y THE LATE i960'S, the West was becoming aware of the tremendous economic strides made by Japan in the quarter century since World War II. A number of publications offered various interpretations of Japan's success. Herman Kahn's book, The Emerging Japanese Superstate, provided a glimpse into the future and concluded-to the surprise of most and to the alarm of some-that Japan's per capita income might exceed that of the U. S. by i990 and her GNP become the largest of any country in the world by the year 2000. While the details of that and other analytical works on Japan have been debated, few contest the proposition that the Japanese economy will continue to grow at a relatively rapid rate, and that sooner or later Japan is likely to challenge the U. S. position of pre-eminent economic power. Japan's stunning success in increasing its U. S. market share in a number of manufactured products and the fact that the Japanese yen was greatly undervalued in relation to the dollar and other currencies were no doubt important considerations behind President Nixon's New Economic Policy of August I97I. The first international phase of the NEP ended on December i8 in a major realignment of world currencies, including a nearly I7 per cent appreciation of the yen against the dollar. In February I972, a trade agreement between the U. S. and Japan was intended to improve opportunities for U. S. exports to Japan. Before and even during those momentous events, the Japanese themselves were confronting various structural problems in their economy arising from the very nature and speed of recent economic growth. It appears that economic measures now being adopted will go far to alleviate those structural difficulties and at the same time cause Japan to take a somewhat more independent posture with respect to the world economy. This article assesses the implications of these changes for the world. As Japan entered the decade of the I970's, structural economic problems unlike any others encountered in the post-war period began to appear. Orthodox monetary policy which had proved so successful during the i960's had