World Library  
Flag as Inappropriate
Email this Article

Japanese post-war economic miracle


Japanese post-war economic miracle

The Japanese post-war economic miracle is the name given to the historical phenomenon of Japan's record period of economic growth between post-World War II era to the end of Cold War. During the economic boom, Japan was catapulted into the world's second largest economy (after the United States) by the 1960s. However, it suffered its longest economic stagnation since World War II during the Lost Decade in the 1990s.


  • Background 1
  • American contributions 2
  • Governmental contributions 3
  • Ministry of International Trade and Industry role 4
  • Ikeda administration and keiretsu 5
  • "Golden Sixties" and shift to export trade 6
  • Conclusion 7
  • See also 8
  • Footnotes 9
  • References 10
  • External links 11


This economic miracle was the result of Post-World War II Japan and West Germany benefiting from the Cold War. It occurred partly due to the aid and assistance of the United States, but chiefly due to the economic interventionism of the Japanese government. After World War II, the United States established a significant presence in Japan to slow the expansion of Soviet influence in the Pacific. The United States was also concerned with the growth of the economy of Japan because there was a risk after World War II that an unhappy and poor Japanese population would turn to communism and by doing so ensure that the Soviet Union would control the Pacific.

The distinguishing characteristics of the Japanese economy during the "economic miracle" years included: the cooperation of manufacturers, suppliers, distributors, and banks in closely knit groups called keiretsu; the powerful enterprise unions and shuntō; good relations with government bureaucrats, and the guarantee of lifetime employment (Shūshin koyō) in big corporations and highly unionized blue-collar factories. This economic miracle was spurred mainly by Japanese economic policy, in particular through the Ministry of International Trade and Industry.

American contributions

The foundations of the aviation industry survived the war
Japanese-made TV sets during the economic boom
Steel plant of Nippon Steel Corporation in Chiba Prefecture – Japanese coal- and metal-related industry experienced an annual growth rate of 25% in the 1960s
The low-cost Nissan Sunny became a symbol of the Japanese middle class in the 1960s

In the mid- to late-1940s, wartime expenses threatened economic ruin in Japan. Post-World War II inflation, unemployment and shortages in all areas seemed overwhelming. Japan’s immediate economic improvement was not achieved on its own. The American government, under the auspices of the Supreme Commander of the Allied Powers (SCAP), played a crucial role in Japan’s initial economic recovery, although Japanese government measures fostered rapid postwar growth. SCAP officials believed economic development could not only democratize Japan but also prevent the reemergence of militarism, and forfend communism. Military hostilities in the Korean peninsula further boosted the economy in 1950 because the U.S. government paid the Japanese government large sums for "special procurement." These payments amounted to 27% of Japan’s total export trade.[1] The United States also insisted that Japan be admitted to GATT as a "temporary member" – over British opposition. During the Korean War, SCAP departed and the Treaty of San Francisco restored sovereignty to the government of Japan.

Governmental contributions

The Japanese financial recovery continued even after SCAP departed and the economic boom propelled by the Korean War abated. Japanese economy survived from the deep recession caused by a loss of the U.S. payments for military procurement and continued to make gains. By the late 1960s, Japan had risen from the ashes of World War II to achieve an astoundingly rapid and complete economic recovery. According to Mikiso Hane, the period leading up to the late 1960s saw "the greatest years of prosperity Japan had seen since the Sun Goddess shut herself up behind a stone door to protest her brother Susano-o's misbehavior." The Japanese government contributed to the post-war Japanese economic miracle by stimulating private sector growth, first by instituting regulations and protectionism that effectively managed economic crises and later by concentrating on trade expansion.

Ministry of International Trade and Industry role

The Chalmers Johnson writes, “are not intelligible without reference to the contributions of MITI” (Johnson, vii). Established in 1949, MITI’s role began with the "Policy Concerning Industrial Rationalization" (1950) that coordinated efforts by industries to counteract the effects of SCAP’s deflationary regulations. In this way, MITI formalized cooperation between the Japanese government and private industry. The extent of the policy was such that if MITI wished to “double steel production, the neo-zaibatsu already has the capital, the construction assets, the makers of production machinery, and most of the other necessary factors already available in-house”. The Ministry coordinated various industries, including the emerging keiretsu, toward a specific end, usually toward the intersection of national production goals and private economic interests.

MITI also boosted the industrial security by untying the imports of technology from the imports of other goods. MITI's Foreign Capital Law granted the ministry power to negotiate the price and conditions of technology imports. This element of technological control allowed it to promote industries it deemed promising. The low cost of imported technology allowed for rapid industrial growth. Productivity was greatly improved through new equipment, management, and standardization.

MITI gained the ability to regulate all imports with the abolition of the Economic Stabilization Board and the Foreign Exchange Control Board in August 1952. Although the Economic Stabilization Board was already dominated by MITI, the Yoshida Governments transformed it into the Economic Deliberation Agency, a mere "think tank," in effect giving MITI full control over all Japanese imports. Power over the foreign exchange budget was also given directly to MITI.

MITI's establishment of the Japan Development Bank also provided the private sector with low-cost capital for long-term growth. The Japan Development Bank introduced access to the Fiscal Investment and Loan Plan, a massive pooling of individual and national savings. At the time FILP controlled four times the savings of the world's largest commercial bank. With this financial power, FILP was able to maintain an abnormally high number of Japanese construction firms (more than twice the number of construction firms of any other nation with a similar GDP).

Ikeda administration and keiretsu

In 1954, the economic system MITI had cultivated from 1949 to 1953 came into full effect. Prime Minister Hayato Ikeda, who Johnson calls "the single most important individual architect of the Japanese economic miracle," pursued a policy of heavy industrialization. This policy led to the emergence of 'over-loaning' (a practice that continues today) in which the Bank of Japan issues loans to city banks who in turn issue loans to industrial conglomerates. There was a shortage of capital in Japan at the time, industrial conglomerates borrowed beyond their capacity to repay, often beyond their net worth, causing city banks in turn to overborrow from the Bank of Japan. This gave the national Bank of Japan complete control over dependent local banks.

The system of over-loaning, combined with the government's relaxation of anti-monopoly laws (a remnant of SCAP control) also led to the reemergence of conglomerate groups called keiretsu that mirrored the wartime conglomerates, or zaibatsu. Keiretsu efficiently allocated resources and became competitive internationally.

At the heart of the keiretsu conglomerates' success lay city banks, which lent generously, formalizing cross-share holdings in diverse industries. The keiretsu spurred both horizontal and vertical integration, locking out foreign companies from Japanese industries. Keiretsu had close relations with MITI and each other through the cross-placement of shares, providing protection from foreign take-overs. For example, 83% of Japan's Development Bank's finances went toward strategic industries: shipbuilding, electric power, coal and steel production.[2] Keiretsu proved crucial to protectionist measures that shielded Japan’s sapling economy.

Keiretsu also fostered an attitude shift among Japanese managers that tolerated low profits in the short-run because keiretsu were less concerned with increasing stock dividends and profits and more concerned about interest payments. Approximately only two-thirds of the shares of a given company were traded, cushioning keiretsu against market fluctuations and allowing keiretsu managers to plan for the long-term and maximize market shares instead of focusing on short-term profits.

The Ikeda Administration also instituted the Foreign Exchange Allocation Policy, a system of import controls designed to prevent the flooding of Japan’s markets by foreign goods. MITI used the foreign exchange allocation to stimulate the economy by promoting exports, managing investment and monitoring production capacity. In 1953, MITIs revised the Foreign Exchange Allocation Policy to promote domestic industries and increase the incentive for export capacity revising the export-link system. A later revision confirmed based production capacity on foreign exchange allocation to prevent foreign dumping.

"Golden Sixties" and shift to export trade

The period of rapid economic growth between 1955 and 1961 paved the way for the "Golden Sixties," the second decade that is generally associated with the Japanese economic miracle. In 1965, Japan's nominal GDP was estimated at just over $91 billion. Fifteen years later, in 1980, the nominal GDP had soared to a record $1.065 trillion.

Under the leadership of Prime Minister Ikeda, former minister of MITI, the Japanese government undertook an ambitious "income-doubling plan" (所得倍増). Ikeda lowered interest rates and taxes to private players to motivate spending. In addition, due to the financial flexibility afforded by the FILP, Ikeda’s government rapidly expanded government investment in Japan’s infrastructure: building highways, high-speed railways, subways, airports, port facilities, and dams. Ikeda's government also expanded government investment in the communications sector of the Japanese economy previously neglected. Each of these acts continued the Japanese trend towards managed economy that epitomizes the mixed economic model.

Besides Ikeda's adherence to government intervention and regulation of the economy, his government pushed trade liberalization. By April 1960, trade imports had been 41 percent liberalized (compared to 22 percent in 1956). Ikeda planned to liberalize trade to 80 percent within three years. His plans however met severe opposition from both industries who had thrived on over-loaning and the nationalist public who feared foreign enterprise takeovers. The Japanese press likened liberalization to "the second coming of the black ships," "the defenselessness of the Japanese islands in the face of attack from huge foreign capitalist powers," and "the readying of the Japanese economy for a bloodstained battle between national capital and foreign capital." Ikeda's income-doubling plan was largely a response to this growing opposition and widespread panic over liberalization, adopted to quell public protests. Ikeda's motivations were purely pragmatic and foreign policy based however. He moved toward liberalization of trade only after securing a protected market through internal regulations that favored Japanese products and firms.

Ikeda also set up numerous allied foreign aid distribution agencies to demonstrate Japan’s willingness to participate in the international order and to promote exports. The creation of these agencies not only acted as a small concession to international organizations, but also dissipated some public fears about liberalization of trade. Ikeda furthered Japan’s global economic integration by joining the OECD in 1964. By the time Ikeda left office, the GNP was growing at a phenomenal rate of 13.9 percent.

In 1962, Kaname Akamatsu published his famous article introducing the Flying Geese Paradigm. It postulated that Asian nations will catch up with the West as a part of a regional hierarchy where the production of commoditized goods would continuously move from the more advanced countries to the less advanced ones. The paradigm was named this way due to Akamatsu's envisioning this pattern as geese flying in unison with Japan being an obvious leader.


The period of growth came to an end with the bursting of the Japanese asset price bubble in 1991. This was followed by the "Lost Decade" (1991–2000).

Also, the conclusion of the economic miracle is consistent with the conclusion of the Cold War. While the Japanese stock market hit its all-time peak at the end of 1989, it made a recovery later in 1990, only to drop precipitously in 1991. The conclusion of the Japanese asset price bubble coincides with the year in which occurred the Gulf War and the dissolution of the Soviet Union.

See also


  1. ^ Nakamura, Takafusa (1981). "3: Rapid Growth". The Postwar Japanese Economy: Its Development and Structure (book). trans. Jacqueline Kaninski. Tokyo: University of Tokyo Press. p. 56. 
  2. ^ Chalmers Johnson MITI and the Japanese Miracle p. 211


  • Allen, G.C. Japan’s Economic Recovery. Oxford: Oxford University Press, 1958.
  • Allinson, Gary. Japan’s Postwar History Ithaca: Cornell University Press, 1997.
  • Collisson, Nancy. Examination of the Influence of Japanese Culture and the Failures of Economic Reforms Proposed by Supreme Command Allied Powers (SCAP) Economic Missions from 1947 to 1949, on High Rates of Personal Savings in Japan by Nancy Collisson / EALC MA Thesis. University of Kansas Library (Call No.: ML410.T467 T58 1999), 1996.
  • Dower, John. Embracing Defeat: Japan in the Wake of World War II New York: W.W. Norton, 1999.
  • Forsberg, Aaron. America and the Japanese Miracle. Chapel Hill: University of North Carolina Press, 2000.
  • Hane, Mikiso. Eastern Phoenix: Japan Since 1945. Boulder: Westview Press, 1996.
  • Huber, Thomas. Strategic Economy in Japan. Boulder: Westview Press, 1994.
  • Jansen, The Making of Modern Japan, Belknap, 2000 (ISBN 0-674-00334-9)
  • Johnson, Chalmers. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford: Stanford University Press, 1982.
  • Okazaki, Tetsuji and Takafumi Korenaga. “The Foreign Exchange Allocation Policy in Postwar Japan.” Changes in Exchange Rates in Rapidly Developing Countries. Ed. Takatoshi Ito and Anne Krueger. Chicago: University of Chicago Press, 1999.
  • ---. “Foreign exchange allocation and productivity growth in postwar Japan: a case of the wool industry” Japan and the World Economy 11 (1999): 267-285
  • Pyle, Kenneth. The Making of Modern Japan. 2nd ed. Lexington: D.C. Heath and Company, 1996.
  • Rasche, Paul. “Japan Inc. in the Debt Trap” April 2000. 26 November 2005.
  • Tsuru Shigeto, Japan's Capitalism: Creative defeat and beyond, 1993.
  • Vestal, James. Planning for Change: Industrial Policy and Japanese Economic Development, 1945-1990 Oxford: Clarendon Press. 1993.
  • Van Wolferen, The Enigma of Japanese Power, Vintage, 1990 (ISBN 0-679-72802-3)

External links

  • Zaibatsu Dissolution, Reparations and Administrative Guidance
  • Japan Must Shake Off U.S.-Style Globalization by Yukio Hatoyama
This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.
Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.
By using this site, you agree to the Terms of Use and Privacy Policy. World Heritage Encyclopedia™ is a registered trademark of the World Public Library Association, a non-profit organization.

Copyright © World Library Foundation. All rights reserved. eBooks from World eBook Library are sponsored by the World Library Foundation,
a 501c(4) Member's Support Non-Profit Organization, and is NOT affiliated with any governmental agency or department.