The Japanese Economy Since World War II

Abstract

Japan’s remarkable postwar experience of economic reconstruction, growth, and development explains much of why it is so intensely studied in other countries today. In common with much of the world and particularly the advanced, capitalist economies of Western Europe, Japan prospered during the years of the long postwar boom (1954–1970). Reestablished by the Truman administration as the archetype of an anti-inflationist, export-based economy, Japan’s success is perhaps unsurprising. What is remarkable, however, is that Japanese economic growth and development continued right up until the 1990s, despite being forced to make abrupt “corrections” to the country’s basic monetary settings by the Nixon and Reagan administrations, changes that precipitated an eventual three-fold increase in the international exchange rate of the yen. Against the backdrop of rising petroleum and energy prices (or “oil shocks”), global inflation, systematic financial crises, widespread economic recession, and the vexing phenomena of stagflation in many of the more mature capitalist economies of the West, the Japanese economy thrived. Japan became the world’s second largest economy (in terms of nominal gross domestic product [GDP]) from 1968 until 2010 with a relatively small population (101 million in 1968 and 128 million in 2010). The fall of Japan’s economic standing from second to third place tragically coincided with the triple disaster of March 11, 2011: an earthquake and tsunami that struck along the Pacific coast of northeastern Japan, causing a nuclear catastrophe. The triple disaster, in turn, led to the fall of the non–Liberal Democratic Party (LDP) Kan and Noda governments, a belated acknowledgement of Japan’s worsening demographic situation (chronic low birthrates with an increasingly elderly population) the re-election of the LDP Abe government, and the return of economic growth ideology in the form of Abenomics and its New Capitalism successor.