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Economic Development of Japan. Opening of New Tokyo Stock Exchange, 1897. No.5 Meiji 4. Macroeconomy of Late Meiji (1890s-1900s) Trade, Budget & Finance, Saving Mobilization.

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economic development of japan
Economic Development of Japan

Opening of New Tokyo Stock Exchange, 1897

No.5 Meiji 4

macroeconomy of late meiji 1890s 1900s trade budget finance saving mobilization
Macroeconomy of Late Meiji (1890s-1900s)Trade, Budget & Finance, Saving Mobilization
  • Aggressive public spending continued for militarization and industrialization, causing budget deficit and gold reserve loss.
  • Cotton industry succeeded in import substitution. Trade exhibited dual structure—exporting light industry goods to Asia and importing machinery from the West.
  • Yen initially floated down, but was fixed at $1=2 yen after joining the gold standard in 1897.
  • Banks and stock exchanges were set up, but main source of saving remained self-finance and joint stock companies within the private business sector.
  • Japan relied relatively little on FDI. But foreign bonds were issued to execute the Japan-Russia War, local public investments and budget financing.
government was relatively small
Government was relatively small

Meiji

Source: Ryoshin Minami, The Economic Development of Japan, 1986.

slide4

Tax Revenue Structure

Meiji

Source: Management and Coordination Agency, Historical Statistics of Japan, vol.3, Japan Statistical Association, 1988, pp.268-269.

slide5

Meiji

PP.60-61

Shifts inTrade Structure

Source: Ryoshin Minami, The Economic Development of Japan, 1986.

trade structure in meiji incl colonies
Trade Structure in Meiji (incl. colonies)
  • Exports to West--silk to US (60-70%) dominated
  • Imports from West--machinery, steel, US raw cotton
  • Exports to other areas--cotton products, light industry goods (matches, umbrellas, clocks, glass products, lamp, knitted goods)
  • Imports from other areas--foodstuff, Indian raw cotton

Trade content with developing areas & with colonies were similar

Export

Import

Taiwan, Korea, occupied China

Developing areas

Europe, US

Source: Y.Yamamoto & K.Oku, “Trade,” JEH vol.5, 1990.

slide8

P.90

Exchange Rate Regime

Silver standard (float): until 1897 – Depreciation against Western currencies; East Asia (Shanghai forex market) used silver

Gold standard (fix): 1897-1917 and 1930-31 – Adopting global standard with reparation gold from China (at the initiative of Finance Minister Matsukata)

Merits of gold standard

-Pride of joining the first-class country club-No exchange risk-Ease in issuing foreign bonds

Demerit?

-No more depreciation

Meiji

slide9

P.103

--Due to active public spending, Japan faced BOP pressure.

--Foreign bond issue can be regarded as a financing measure to avoid fiscal belt-tightening.

--Meanwhile, Japan’s gold reserves were on a declining trend in late Meiji.

--Japan eventually solved the BOP crisis not by tight budget but through WW1 export boom.

Meiji

WW1

japan china war reparation
Japan-ChinaWar Reparation
  • Japan fought and won a war against QingDynasty of China over the control of Korea (1894-95).
  • After the war, Japan received from China:
    • Taiwan and Penghu Islands
    • Liaodong Peninsula (immediately forced to return to China under the pressure of Russia, Germany, France)
    • Reparation of 365 million yen (4 times the annual budget)
  • China borrowed from other countries and paid reparation in sterling-denominated checks in London
  • Japan held this amount in London as gold reserves
  • This balance was used to issue convertible paper money in Japan (establishment of gold exchange standard, 1897).
slide12

Estimated Saving Ratios

Dependence on Foreign Saving=(Imports-Exports)/Gross Investment

Meiji

Source: Ryoshin Minami, The Economic Development of Japan, 1986.

slide13

PP.92-93

Foreign saving(bond issues)

Infrastructure Public spending

Intra-sectoral financing --Self finance --Joint stock companies --Mobilizing rich merchants & producers

Gov’t

Tax

Agriculture

Industry

Banks

Not very active

slide14

Gross Savings (% of estimated GDP)

Prof. Teranishi’s savings & investment estimates expressed in percent of GDP

Gross Investment (% of estimated GDP)

Note: GDP estimate by Prof. Yamada, from Management and Coordination Agency, Historical Statistics of Japan, vol.3, Japan Statistical Association, 1988, pp.344-345.

a comparison with vietnam today nguyen ngoc son s preliminary study
A Comparison with Vietnam Today (Nguyen Ngoc Son’s preliminary study)

% of GDP

--Saving & investment rates are higher than Meiji Japan (data problem?)

--Business is a large saver & investor: internal saving mobilization of business sector (same as Meiji Japan)

--Mobilization of foreign saving is large (nearly 10% of GDP)

Saving/GDP

Business

Household

Government

Household

Investment/GDP

Business

Business

Government

(S-I)/GDP

Household

Government

slide16
Japanese Economy and Foreign Capital, 1858-1939Simon Bytheway, 2005 (in Japanese, PhD dissertation at Tohoku Gakuin Univ.)
  • After 1858, foreign trading firms came, but their activities were confined to foreign settlement areas.
  • Japan prohibited FDI until 1899 (revision of commercial law). Even after that, policy and popular opinion remained hostile to FDI.
  • During Meiji period, foreign debt issue was much larger than FDIShare in foreign saving mobilization--gov’t bonds 82.5%, municipal bonds 7.8%, corporate bonds 9.0%, FDI 0.7%
  • However, FDI played important roles in some industries (see below), esp. technology transfer through patents.Ex. light bulbs: bamboo filament  tungsten filament
foreign bond issue of meiji government
Foreign Bond Issue of Meiji Government

--Foreign bond issue was made easier by adoption of the gold standard. Other reasons were economic and legal maturity of Japan, and victories over China and Russia.--Borrowing in later period was mainly for war and deficit refinancing.

Source: S.J.Bytheway (2005), pp.106-107

central government bonds outstanding
Central Government Bonds Outstanding

Source: Management and Coordination Agency, Historical Statistics of Japan, vol.3, Japan Statistical Association, 1988, pp.278-279.

central government bonds outstanding including domestic foreign bonds
Central Government Bonds Outstanding(Including Domestic & Foreign Bonds)

(% of Estimated GDP)

Note: GDP estimate by Prof. Yamada, from Management and Coordination Agency, Historical Statistics of Japan, vol.3, Japan Statistical Association, 1988, pp.344-345.

foreign bond issues of municipalities six cities borrowed abroad for building local infrastructure
Foreign Bond Issues of MunicipalitiesSix cities borrowed abroad for building local infrastructure

In addition, many public/utility companies issued corporate bonds: RR companies, banks, textile companies, power companies, etc.

Source: S.J.Bytheway (2005), pp.138-139

major fdi firms in meiji period
Major FDI Firms in Meiji Period

FDI was relatively small (cf. China, India). However, it played leading roles in tobacco, oil refining, electrical and general machinery, weapons, automobiles, glass, (aluminum). Later, zaibatsu mostly took over FDI technology and production.

Source: S.J.Bytheway (2005), pp.166-167