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Japan POSTWAR DEVELOPMENT
After the end of World War II, Japan's economy was in a
shambles, and its international economic relations were
almost
completely disrupted. Initially, imports were limited to
essential
food and raw materials, mostly financed by economic
assistance from
the United States. Because of extreme domestic shortages,
exports
did not begin to recover until the Korean War (1950-53),
when
special procurement by United States armed forces created
boom
conditions in indigenous industries. By 1954 economic
recovery and
rehabilitation were essentially complete. For much of the
1950s,
however, Japan had difficulty exporting as much as it
imported,
leading to chronic trade and current account deficits.
Keeping
these deficits under control, so that Japan would not be
forced to
devalue its currency under the
Bretton Woods System (see Glossary)
of fixed exchange rates that prevailed at the time, was a
primary
concern of government officials. Stiff quotas and tariffs
on
imports were part of the policy response. By 1960 Japan
accounted
for 3.6 percent of all exports of noncommunist countries.
During the 1960s, the dollar value of exports grew at
an
average annual rate of 16.9 percent, more than 75 percent
faster
than the average rate of all noncommunist countries. By
1970
exports had risen to nearly 6.9 percent of all
noncommunist-world
exports. The rapid productivity growth in manufacturing
industries
made Japanese products more competitive in world markets
at the
fixed exchange rate for the yen (for value of the
yen--see Glossary)
during the decade, and the chronic deficits that
the
nation faced in the 1950s had disappeared by the middle of
the
1970s. International pressure to dismantle quota and
tariff
barriers mounted, and Japan began moving in this
direction.
The 1970s brought major, wrenching changes for Japan's
external
relations. The decade began with the end of the fixed
exchange rate
for the yen (a change brought about mainly by rapidly
rising
Japanese trade and current account surpluses) and with a
strong
rise in the value of the yen under the new system of
floating
rates. Japan also faced sharply higher bills for imports
of energy
and other raw materials. The new exchange rates and the
rise in raw
material prices meant that the surpluses of the decade's
beginning
were lost, and large trade deficits followed in the wake
of the oil
price shocks of 1973 and 1979. Expanding the country's
exports
remained a priority in the face of these raw material
supply
shocks, and during the decade exports continued to expand
at a high
annual average rate of 21 percent
(see Balance of Merchandise Trade
, this ch.).
Most of the concerns of the 1970s diminished in the
1980s. Oil
and other raw material prices fell dramatically, and
Japan's trade
deficits turned quickly to enormous trade surpluses by the
middle
of the decade. In response to these surpluses, the value
of the yen
rose against that of other currencies in the last half of
the
decade, but the surpluses proved surprisingly resilient to
this
change. The large surpluses, combined with foreign
perceptions that
Japan's import markets were still relatively closed,
exacerbated
tension between Japan and a number of its principal
trading
partners, especially the United States. A rapid increase
in imports
of manufactured goods after 1987 eased some of these
tensions, but
as the decade ended, friction still continued.
Through most of the postwar period, foreign investment
was not
a significant part of Japan's external economic relations.
Both
domestic and foreign investments were carefully controlled
by
government regulations, which kept the investment flows
small.
These controls applied to direct investment in the
creation of
subsidiaries under the control of a parent company,
portfolio
investment, and lending. Controls were motivated by the
desire to
prevent foreigners (mainly Americans) from gaining
ownership of the
economy when Japan was in a weak position after World War
II, and
by concerns over the balance of payments deficits
(see Capital Flows
, this ch.). Beginning in the late 1960s, these
controls were
gradually loosened, and the process of deregulation
accelerated and
continued throughout the 1980s. The result was a dramatic
increase
in capital movements, with the biggest change occurring in
outflows--investments by Japanese in other countries. By
the end of
the 1980s, Japan had become a major international
investor. Because
the country was a newcomer to the world of overseas
investment,
this development led to new forms of tension with other
countries,
including criticism of highly visible Japanese
acquisitions in the
United States and elsewhere.
Data as of January 1994
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