24 - The challenge of militarism, and a change of roles for Nichigin and Shokin, 1929–1937

Summary

The lengthy debates on when and how to resume specie exports or to return to the full working of the gold standard resulted in a library of monetary literature, which, because of its bulk, the bank historian can only dip into. The Minister of Finance, Junnosuke Inoue, in addressing the Diet, argued that lifting the specie embargo and returning to the gold standard with the old par value of yen to pound sterling and dollar would have deflationary effects upon the economy and would lower the price level, thus enhancing Japan's international competitiveness and eventually giving strength to the economy. This unjustified ministerial optimism proved to be very damaging.

The specie embargo was lifted in January 1930 but had to be reimposed in December 1931. During these two years, the specie outflow was the worst in history, amounting to ¥417 million in 1931. All this was aggravated by rampant speculation as some banks were buying in dollars and pounds sterling especially in the autumn of 1931 when it was clear that the embargo would have to be reimposed. The specie reserve, at ¥1,343 million at the end of 1929, was reduced to ¥557 million at the end of 1931. The decrease of ¥786 million was larger than the total specie reserve in 1916. The Finance Minister, Inoue, was replaced by Korekiyo Takahashi on the very day of the reimposition of the specie embargo, which marked the final Japanese departure from the gold standard.