19th July, 1954
Japan’s Economic Outlook-Mid 1954 1. In July 1954,the Japanese Government published an ‘Economic Report for the 1954 Fiscal Year’, generally referred to as the annual ‘economic white paper’. The most complete English digest of this publication (which is some 160,000 words long in the original) has already been forwarded to the Department (Memo. No.
829 of 15th July 1954) but the situation disclosed by this report and by other available information merits more than passing attention, Although, according to the official press summary of the white paper, ‘Japan’s economy at the present time is at the stage of consolidation after a period of too accelerated, uneven expansion during the past year, the situation of the Japanese economy can only be described as extremely precarious, and many businessmen fear that the next twelve months will be characterised by serious deterioration rather than consolidation.
[matter omitted]
10. The fundamental problem of the Japanese economy, in the long run, is to produce enough, both directly for domestic consumption and indirectly through trade with other countries, to support its already excessive and rapidly expanding population. Dependent as Japan is on imports for a substantial part of her foodstuffs and for many of her raw materials such as iron ore, raw cotton and wool, she is forced even more than Great Britain to trade in order to live. Although there are ambitious plans to increase food production, their successful implementation will serve only to offset the growth of demand following the further increases in population that are expected. The imported raw materials are essential not only for the production of consumers’ goods for the Japanese market but also for much of the export production that is needed to earn foreign exchange to pay for imported food and raw materials.
11. There is, therefore, a chronic Japanese trade problem, and the maintenance of equilibrium in the balance of payments is a continuing preoccupation. The special economic uncertainty of the present time arises directly from the development in recent years of a pattern of trade that cannot be sustained from Japan’s own resources-a level of imports that is substantially beyond her capacity to earn foreign exchange by her export trade, and can only be financed by extraordinary measures such as US procurement and foreign loans or grants. As US procurement declines (according to the American Embassy it is not likely to exceed 550 to 600 million dollars in the current fiscal year as compared with about $760 million last year) the resulting deficit can only be covered by various forms of external financial assistance or by the running down of Japan’s currency reserves, until such time as imports and exports are readjusted to new levels.
[matter omitted]
15. According to the recent economic white paper the root of Japan’s trade difficulties ties not in inadequate production or even in ‘the stagnant export situation’, but in the growth of imports. This is attributed to:
1. The importation of $200 million more foodstuffs than originally planned because of poor domestic crops in 1953. (The prospects for 1954 rice crops is again bad.) 2. The reaction resulting from the relatively small amount imported in 1952.
3. Higher commodity prices in Japan compared with the world level, which brought profits to traders importing goods.
4. The rise in domestic consumption power.
The last-mentioned, as measured by estimates of total consumption expenditure, increased by 13% from 1952 to 1953. Individual incomes were up by 20% and savings by only 10%, and the increase in expenditures was disproportionately concentrated on imported goods.
[matter omitted]
19. There are so many examples of countries that have managed to carry on somehow, despite extraordinary economic difficulties and, by a series of expedients, have staved off an apparently inevitable disaster, that it would be rash at this stage to predict a major economic crisis for Japan. Nevertheless, calculations regarding Japan’s political and economic future should not ignore the distinct possibility that the present difficulties may get so far out of hand that the country will be faced by a serious depression within the coming twelve months. It is not necessary to stress the dangers that this would entail for Japan’s fragile democracy and the opportunities that it would create for extremists of both the left and the right. In such circumstances economics and politics become so closely involved that the United States, in its desire to stabilise the political situation in the Far East, might feel obliged to provide assistance on a scale sufficient to prevent any economic breakdown in Japan. This would probably be accompanied by renewed American pressure on Australia and other sterling countries to share more of the ‘burden’, by taking more Japanese goods, as a relatively small price for keeping Japan outside the communist sphere of influence.
_
_
[AA : A1838/325, 3103/4/3, ii]