Stresses and Strains of Japan’s Expansion

Abstract

FANTASTIC AND FASCINATING may not be usual words of a scholar but they express the reaction of a two-week observer and two-month student of Japan's economy. Much has been written about the Phoenix-like recovery from the ashes of the war bombing, and how the growth of the Japanese economy has continued to out-pace that of all other nations. The rise in living standards is remarkable. Today that economy faces serious financial strains and problems, some inherent but most arising from the recent rapid expansion. Bank credit has been stretched to an unbelievable extent and foreign exchange problems are large. The May prospectus of the Japan Development Bank is a valuable source for summarized statistics. The impressions I write are my interpretation of many statements, facts, opinions and observations. As the Japanese Government exercises considerable control over many phases of the economy any discussion must consider both political and economic facts. The first phase of the Japanese boom, the period of post-war rehabilitation, was over by 1955, according to the White Book of Japan's Planning Agency, hereafter referred to as EPA. At that time, however, Japan's basic industries were not yet fully equipped and almost none of her industries had been able to catch up with Western technological advances. In the following five-year period, Gross National Product increased at an average annual rate of 10% (the highest rate in the world) and producer's durable equipment investment by 29% annually from approximately $2.1 billion to $8.4 billion. In the summer of 1960, after the political riots in Tokyo, the ruling Kishi Government was replaced by Prime Minister Ikeda, an advocate of high economic growth. With a general election set for Nov. 20, 1960, Prime Minister Ikeda announced a economic and pledged his government to a doubling over the next 10 years with a target of 9% annual growth for the years 1961-63. Although this was less than the average for the preceding five years the announcement had an immediate and powerful psychological effect. The survey of investment (construction) programs of important companies, which was collected generally before the announcement, showed an expected increase of 10% over the preceding year while that collected in Jan. showed an increase of a minimum of 35% and a maximum of 50%. Under the new income doubling policy the budget was increased, the Bank of Japan lowered its discount rate, commercial banks followed by lowering rates on loans and, on April 1, 1961, reduced interest rates on deposits. In July the EPA published the Economic White Book for Fiscal 1961 analyzing Japan's economy and outlining targets and problems of the Plan for Doubling National Income. Critics of this White Book say the work seemed to be not a plan but a long range forecast based on the premise that since the economy grew at a rate of 10% annually for the previous six years a doubling in 10 years or an annual growth of 7.2% would come as a matter of course. The importance of the so-called plan was its effectiveness as a slogan which created confidence by spelling out to the people the growth which was occurring and could be expected to come. The increase in the GNP in fiscal is estimated as 16.3% which becomes 11.6% when adjusted for price increases that accompanied the boom. Equipment investments by industry in reached the level anticipated for 1970 and totaled over $10.4 billion. Consumer prices, which had been remarkably steady, rose 9%. More serious was the much publicized adverse balance of trade that was aggravated by the large purchases of equipment and accumulation of raw materials by the rapidly growing industries. Current transactions