The Japanese Economy After WWII

Researched by Jessica Leung

After WWII, Japan’s economy boomed: it rivaled the US in economic recovery in just 80 years up until the end of the Cold War era. Japan rose from the devastating destruction to recovery in the wake of Hiroshima and Nagasaki to becoming one of the top performing economy in the world. ​

(continued) Looking at Japan’s economic growth, it is hard to imagine that it once suffered from being on the losing side of WW2 with most citizens of its nation barely had their basic needs met. Japan’s westernization, military growth, defeat, and economic growth were products of interaction with the United States since Matthew Perry showed up at its pier on the very day of July 8th, 1853 forcing isolated Japan to open up to trade with the United States. 

The trading with the West led to Japan wanting to prove itself to the world. Hence, it quickly industrialized to catch up with the West and became the first country from the East to defeat a Western power in the Russo-Japanese War. However, the isolated island was running out of resources to grow its empire and started its invasion of neighboring countries such as the Korean Peninsula and China. During WW2, it even stretched its empire all across Southeast Asia occupying Singapore, Philippines, Dutch Indies, and Burma. 

It wasn’t until after the second atomic bomb in Hiroshima did Hirohito decided to surrender during World War 2. Right after the surrender of the Empire of Japan, the United States occupying led by General MacArthur led the Allies in the occupation and rehabilitation of Japan with widespread military, political, economic, and social reform, and unlike Germany, the US occupation of Japan was indirect, meaning that the Japanese government still existed as a puppet government. Japan was determined to emerge as an economic success after its humiliating defeat reluctantly allying itself with the very nations that defeated them during the war.

During the war, the United States had sunk all of the Japanese military and commercial ships in a sea lane blockage, leading Japan to have lost the means to transporting energy and materials between the island to its colony and occupied areas. This was one of the most effective ways to lead Japan to the loss of its war. Also, the U.S. had also bombed most of the Japanese major cities. One of the largest air raids was conducted in Tokyo near the end of the war where 100,000 people were trapped in the fire and killed within a few hours. It costed almost as much damage as the two other atomic bombs. The atomic bombs did not affect the Japanese production capacity as much as it had impacted its national psychologically. The surviving factories and railroads were defunct from the aerial bombings, and with the lack of input as well, it was doomed for an economic shortage. 

In 1946, a year after Japan surrendered, there was a food shortage. Food was rationed for everyone in families and there were black markets that popped up everywhere. There were reports that people who did not go to the black market died of starvation. Soldiers who returned home were not only starving from the lack of food, but there was a lack of jobs for them as well. Unemployment and inflation became a huge problem in Japan. Even the black market suffered from inflation as the government kept printing money. 

The United States occupation of Japan’s goal shifted from demilitarizing to helping their economy as Japan was in such desperate needs economic stability. By 1948, a US banker, Joseph Dodge came up with an economic reform called the 1948 Dodge Line. The main points were to balance the national budget by reducing debt and lower inflation, come up with a more efficient tax collection plan, dissolve the Reconstruction Finance Bank due to its uneconomical loans, decrease the scope of government intervention, and to fix the exchange rate to 360 yen to 1 US dollar to keep Japanese export prices low. Note that he focused on privatizing industries and reduced the government’s involvement in the economy. 

Similar to many other nations who tried to stop the inflation, the nation faced a recession due to the shock on the economic activity. The Bank tried to print more money against Dodge’s recommendation when the recession was felt really hard in Japan. However, another big event happened by 1950 which secured Japan’s economic activity as well as leveraged its position with the United States during the Cold War. This event was the Korean War. 

The Korean War in 1950 allowed the Japanese to supply manufactured weapons using their vulnerability to its economic advantage that stabilized its factories. 

By 1951, Japan became the lead in the world of shipbuilding supplies that boasted 1% control of the industry nationally that increased national wealth. Factories that previously manufactured wartime commodities started producing items of every-day use such as motorcycles and cars. Technological companies that are still influential today are the leading brands of electronics. Honda (1955), Toshiba (1939), and Sony (1946) among many others are the best- known companies that were born out of the post-war industrialization still influencing the way consumers purchase our electronics today.

References 

1. Alexander, J. Arthur. “In the Shadow of the Miracle. The Japanese Economy Since the End of the High- Speed Growth” Lexington Books, (2002). 
2. Chung, William K., and Denison, Edward F. “How Japan’s Economy Grew So Fast” Washington Press. (1976). 
3. Time Magazine < http://factsanddetails.com/media/2/20091003-76650af76aa1d603_large-450x598.jpg>  [Retrieved 1/31/2019]. 
4. Nippon Stock Exchange <Nikkei Stock Chart >  [Retrieved 1/24/2019]. 
5. Post War Recovery.  < http://www.grips.ac.jp/teacher/oono/hp/lecture_J/lec10.htm>. [Retrieved 1/31/2019]
6. Masahiro, Takada. “Japan’s Economic Miracle: Underlying Factors and Strategies for the Growth” <https://www.lehigh.edu/~rfw1/courses/1999/spring/ir163/Papers/pdf/mat5.pdf>. March 1999. 
7. Takatoshi, Itō. “ The Japanese Economy, Volume 10.” [Retrieved 1/31/2019]. 

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