2 - Money, Banking, and Fiscal Reforms in Allied Occupied Japan, 1945–1952

Summary

The following investigation will examine the progress of monetary, financial and fiscal reforms during the Allied Occupation of Japan, to argue that these reforms were a vital, if under-appreciated, component of the Allied Occupation's mission in Japan from 1945 to 1952. Moreover, policy achievements and shortcomings will be addressed in terms of the actual historical experience of monetary, financial and fiscal reform in the context of Japan's over-arching postwar economic rehabilitation. There is also an intuition and acknowledgement that there were many, inter-related and complex processes at play in mid-20th-century Japan—systematic, institutional, and increasingly global—that were ultimately, if imperfectly, reducible to personalities and political beliefs.

Introduction

The American anti-inflationist, balanced-budget, export-based model of economic recovery, shown to be successful in postwar Germany, quickly became the Truman administration's archetype for Japan and Korea. Occupation-era monetary, financial and fiscal reforms provided stable, new, national currencies which, despite the grave economic, ideological, political and military threats posed by the global Cold and hot Korean Wars, were an essential precondition of the remarkable Japanese and Korean postwar experiences of economic growth. Some historians and policy makers have gone so far as to claim that the economic rise of Japan was “probably the greatest legacy of Pax Americana,” being shaped and controlled almost entirely by the United States of America through “years of direct rule” during the Occupation, the “reforms of Joseph Dodge,” and the “Bretton Woods system itself.”

The following investigation will examine the progress, or lack thereof, of monetary, financial and fiscal reforms during the Allied Occupation of Japan, and to argue that these reforms were a vital, if under-appreciated, component of the Allied Occupation's mission in Japan from 1945 to 1952. Moreover, policy achievements and shortcomings will be addressed in terms of the actual historical experience of monetary, financial and fiscal reform in the context of Japan's over-arching postwar economic rehabilitation. There is also an intuition and acknowledgement that there were many, inter-related and complex processes at play in mid-20th-century Japan—systematic, institutional, and increasingly global—that were ultimately, if imperfectly, reducible to personalities and political beliefs.