From the 1960s to the 1973 crisis, Japan experienced an economic growth which, even if attenuated by brief slowdowns, can nevertheless be defined as exceptional. The problems posed by Japan at the beginning of the period consisted in determining a growth rate of national income compatible with the constraint of the balance of payments and in overcoming the “dualism” of his own economic structure, through industrialization and the development of foreign trade.

At the beginning of the seventies, Japan became the third industrial power in the world and the fourth of the great protagonists of international trade, while its per capita income approached (70%) that of the Federal Republic of Germany..

National income. – In the years 1962-66 the average annual rate of growth in real terms (1965 prices) of the national income was 8.2%. The growth rate of this period was however affected by the constraint on the balance of payments and the consequent restrictive economic measures implemented by the government. In fact, from 1967 to 1972, once the constraint on the balance of payments eased, the average annual rate of growth, again in real terms (1970 prices), was 10.60%.

To get an idea of ​​the extent of this development, it is sufficient to observe that in the period 1960-65 the growth rate of the Japanese economy was 5.3% higher than that of the major industrialized countries and that this difference rose to 9 % in the period 1966-69.

Balance of payments and foreign trade. – The balance of the external accounts represented one of the most delicate aspects of the Japanese economy until the second half of 1967. The trade balance in fact had an alternating trend in the first five years of the 1960s, with a prevalence of deficits. Since 1968, on the other hand, after a year of high deficit, the balance of payments recorded a surplus which was then ever increasing until 1972.

The reasons for the reversal of the trend of the balance of payments are to be found in the expansion of exports and the reduction in the rate of increase of imports. In particular, the increase in exports seems to be due to the elimination of some unfavorable factors such as the rigidity in the production capacity of certain industries, especially the iron and steel ones, and the low production costs of countries competing with Japan on international markets. The reduction in the growth rate of imports, on the other hand, appears to be due to a modification of the production structure in favor of sectors in which the consumption of raw materials is low or in which the added value is high.

In the decade 1965-75, trade with foreign countries grew by more than 700%, from 1385, o6 to 9803.38 million dollars, thanks to intense technological development and the containment of real wages. During this period the Japanese government acted in the direction of trade liberalization, both by progressively reducing tariff barriers and import quotas, and by easing the constraints relating to foreign investment of Japanese capital.

The absence of external deficits and the more stable level of foreign exchange reserves therefore eliminated the need to apply restrictive measures and favored the granting of loans to Japan On the other hand, however, the problem has arisen of avoiding the creation of excess production capacity and of ensuring lasting cost and price stability.

Inflation and monetary policy.- Since 1960 the problem of prices has become the most difficult to deal with. During the 1960s, consumer prices increased, more or less regularly, at a rate of 5% per annum. Wholesale industrial prices remained broadly stable until the 1965 recession, but then began to rise at an average rate of 2%. The problem of Japanese prices appears essentially to be linked to the large difference in absolute levels and relative changes in labor productivity.

Prior to the high economic times of 1959-61, before full employment was reached, this difference was reflected by adequate gaps between wage levels in the various sectors. On the other hand, during the 1960s, the difference between the wages of sectors with different production intensities decreased more and more. The attenuation of diversification in the wage structure has led to a trend towards a significant increase in unit labor costs and prices in the service sectors and in small businesses.

Despite the fact that, in relation to the rate of growth, price behavior continued to be more satisfactory in Japan than in most industrialized countries, nevertheless the control of the inflation rate was a major concern of the Japanese authorities.

In fact, in 1969 restrictive monetary measures were taken, determined for the first time by internal reasons. However, these measures, combined with a fiscal policy that is also restrictive, have never been particularly intense, given the constant concern not to slow down the growth rate and the flow of private investments.

Financial policies and economic plans. – Budgetary policy has had essentially neutral characteristics in Japan, except for some period of restrictive orientation aimed both at imposing compliance with the balance of payments constraint and at controlling the trend in the general level of prices.

Since the second half of the 1960s, the government of Japan has drawn up two “Economic and Social Development Plans”, relating to the periods 1967-71 and 1970-75. The first had as its objective the achievement of a growth rate of the gross national product (GNP) capable of being maintained for a long time in order to ensure a satisfactory level of employment, while at the same time containing inflation within acceptable rates and maintaining a external position that made possible a moderate increase in foreign exchange reserves. The 1970-75 plan defined two fundamental objectives: the internationalization of the economy and its better adaptation to rapid economic expansion.

The first of these objectives was to advance the Japanese economy in the direction of international integration and coordination; the second involved the need to take effective action against the adverse side effects of economic growth and to improve social infrastructure or, in more general terms, to create a rich society that gave space to the well-being of the population and human values.

The 1973 crisis and the recovery. – The positive performance of the Japanese economy came to an abrupt halt in the second half of 1973, when the decline in the growth rate of the national income, a high rate of inflation and the balance of payments deficit manifested themselves as symptoms of a crisis which, albeit with particular characteristics, reflected the uncertainty of the international monetary system after the abandonment of the Bretton Wood agreements and the increase in the prices of numerous raw materials, first of all oil.

Inflation accelerated considerably during 1973, reinforced by strong domestic demand pressures and rising import prices. It then rapidly generalized and all price indices progressed very rapidly, thus determining inflationary expectations which have further accentuated the phenomenon. The rising rate of inflation proved difficult to control through normal monetary and fiscal policy remedies, reflecting an unusual combination of powerful internal and external factors. Furthermore, the acceleration in consumer prices influenced the wage agreements of 1974, leading to a sharp rise in money wages precisely at the moment of the decline in industrial production and real demand.

According to YOUREMAILVERIFIER, the external position of the Japanese economy underwent a surprising change in the same period: the current account balance, which had registered a record surplus of 6.6 billion dollars in 1972, showed a slight deficit in 1973, the first since 1967. This situation, determined by the reduction in exports and by the increase in the prices of basic materials of which Japan is an importer, has given rise, in addition to restrictive policies, to a reversal of the trend towards liberalization of trade with foreign countries. During 1974 and 1975, however, economic policy measures managed to moderate the rate of inflation. Consumer price growth was reduced from more than 30% per annum to around 9% in early 1976, while nominal wage increases showed a parallel deceleration. At the same time, the large current account deficit of 1974, which expressed Japan’s particular dependence on oil imports, turned into a sizable surplus in the early months of 1976.

These results were obtained at the cost of virtual stagnation (reduction of 1.2% of GNP in 1974 and growth of 2.1% in 1975) which contrasts with the average annual growth of about 10% recorded in the previous decade.

The very slow pace of expansion up to the end of 1975 can be explained by the existence of large unused production capacities and the decline in international trade, but also by the prudence with which the measures to revive the economy were adopted, which they began to bear fruit starting in 1976.

Although the high point of the recession was passed relatively soon, the recovery did not gain momentum until the early months of 1976, when world trade and Japanese exports developed rapidly. During this period, domestic demand also strengthened and, in particular, private consumption.

The main task of those responsible for Japanese economic policy has thus become that of consolidating the recovery and ensuring that the expansion takes place without creating new inflationary pressures.