Japan: East Asian Phoenix

Tokyo, August 1945

Like Germany, the postwar years in Japan witnessed what the British magazine The Economist called in 1962 “an economic miracle.” (1962, Gordon, Modern History). In Asia, the Cold War context of anti-communism caused the United States and its allies to decide that rebuilding former enemies was more important than exacting reparations from them in the manner of the years after the First World War. Consequently, in the 1950s Japan and Germany became part of a single American defense structure. Indeed, “hot war” in Asia itself during the 1950s (Korea) and 1960s (Vietnam) made Japan “an eastern barracks” for the United States and moved Japan from hardship to prosperity in an astonishingly short time.

The 1960s saw the transformation of Japan from an island nation on the periphery of Asia once determined to dominate its neighbors by force into a worldwide economic giant committed to peace. Its rise as an economic power had its roots in the practices and policies of the American occupation after the Second World War.

Having lost a sprawling Asian empire, Japan turned its energy to recovery after 1945 and emerged in the 1960s as a economic player just behind its wartime ally Germany in stature; infinitely surpassing in wealth any ambitions frustrated decades earlier by military defeat.

In the wake of its surrender on August 15, 1945, two bodies were created to manage Japan’s occupation – the four-nation Allied Council for Japan located in Tokyo and the 11-member Far Eastern Commission in Washington. These provided a polite figment to the notion of joint allied cooperation. The Pacific war was such an overwhelmingly American effort, however, that postwar Japan was in fact managed almost totally by United States personnel and policy.

Specific responsibility for reconstruction fell to General Douglas MacArthur, Supreme Commander for Allied Powers (SCAP), who brought to the task an exacting paternalism that was imperial in style and missionary in zeal. He oversaw Japan’s disarmament and demilitarization, and put Japan’s wartime rulers on trial in Tokyo in proceedings that were the Japanese equivalent of the Nazi prosecutions at Nuremberg. The “blue-eyed shogun” – as MacArthur became known – imposed sweeping administrative, educational, and social reforms on a prostrate nation intended to alter the industrial and cultural patterns that took the country into war while retaining the trappings of Japanese imperial rule, including the emperor himself.

To this end, Americans drafted a new constitution that was the apex of occupation reforms and sent the clear message that democracy must be the cornerstone of any postwar Japan. Written by the United States, debated and ratified by the Imperial Japanese Diet, the constitution took effect in May 1947.

Itsukushima (Shinto) Shrine, Hiroshima Prefecture

It created a parliamentary political system, disestablished the official state religion of Shinto, permitted women’s suffrage, and formalized basic rights reminiscent of America’s First Amendment, including the freedoms of speech and assembly. And its article 9 committed the Japanese people to “forever renounce war as a sovereign right of the nation and the threat or use of force as means of settling international disputes.”

With a constitution in place, the United States shifted its focus in Japan from democratization to economic recovery amidst rising Cold War tensions around the world. Winston Churchill gave his famous speech in 1946 about an “iron curtain” descending across Europe. At Harvard, Secretary of State George Marshall announced the Truman administration’s program of massive assistance in 1947 to hasten European recovery and blunt the appeal of communist parties across the continent. As the drama of the Berlin blockade and airlift spun to a close in 1949, the Soviets exploded its first atomic bomb, and Mao Zedong defeated the Nationalists, securing China for communism. In the years after 1947, policymakers in Washington began to view reforms in Japan increasingly in relation to efforts to contain the Soviet Union and China. As a revived Germany would serve to resist the temptations of communism in a revived Europe, so American policy aimed to revive the Japan and make its politics democratic – all with an eye to Japan’s future role as a partner in the defense perimeter the United States was building to contain communism in Asia.

Economic revival in Japan did not come easily or right away. Near-starvation conditions existed in much of the country for the first few years after the war. Poor harvests, shortages of basic materials such as coal and wood, the breakdown of institutions, and raging inflation reduced large parts of Japanese society to barter in the years to 1949. But with economic recovery now the prime American objective, the United States removed obstacles to Japanese industrial growth. It encouraged the revival of the great prewar financial conglomerates or zaibatsu it had once sought to break up, and stopped reparation payments. Revived activity came in the production of coal, chemicals, shipping, and steel. U.S. officials promoted Japanese exports to meet a so-called “dollar gap,” and sent a Detroit banker named Joseph Dodge to implement an austerity plan to balance Japan’s budget, tame inflation, and increase trade in 1949. His package of reforms caused great hardships on workers and starved Japanese industry of capital, and brought Japan not to brink of recovery, but to the brink of a downturn at the start of 1950s.

The American effort to repair the Japanese economy came first in the general context of anticommunism and had tepid results. Mao’s victory in China and the outbreak of the Korean War, however, turned a soft American concern for Japan into a hard on-going commitment, and jump-started the Japanese economy with profound long-term effects. For those who ran Japan’s government, the Korean War was a “gift of the gods.” From 1951 to 1953, American military procurements pumped $2.5 billion into the Japanese economy that served the American war effort in Korea, amounting to 60% of Japanese exports.[1]  Even beyond Korea, American military purchases in Japan were important. From 1951 to 1956, U.S. purchases in Japan paid for over one quarter of Japanese imports.[2]

Japan regained its sovereignty by the Treaty of San Francisco in April 1952, and at the same time, ratified a U.S.-Japan Security Treaty, granting the United States basing rights in Japan, among other provisions. The anti-Trust Act enacted in 1945 to dissolve the large business conglomerates and zaibatsu banks was immediately repealed. The banks re-emerged; re-established their links with industry, and even readopted their former names that the anti-Trust Act had forced them to discard. Efforts before 1952 to break up the concentration of economic power in Japan reversed themselves. Occupational strictures were removed and, like Germany, Japan became its own economic master a decade after the war. To achieve Cold War objectives, the United States tacitly endorsed a sort of “guided capitalism” for Japan in which the state, not markets, established priorities. As such, she became America’s principal anchor and ally in Asia by the time the Korean War ended in 1953 and by the time France requested help in Vietnam in 1954.

Treaty of Mutual Cooperation & Security, signed July 19, 1960, extends economic and military features of the 1950s US-Japanese Treaties, still extant.


With America’s increasing commitment to Southeast Asia, prosperity in Japan bloomed and put the country on the path to sustained economic growth. Japan emerged as the world’s third largest industrial nation, and it did so in the 1960s. “Growth was the religion of the decade,” wrote one historian, “and conservative politicians the high priests of ritual GNP.”[3]  The 1960s were at the center of a period of expansion in Japan almost unprecedented in economic history. In the period from 1950 to 1973, Japanese GNP grew at an average year-over-year rate of 10%, with the years 1965-69 seeing 13% growth rates. Measured in US dollars, Japan’s success was dazzling. GNP moved from $11 billion in 1950 to $25 billion in 1955; then skyrocketed 13-fold to $320 billion in 1973 – the 1960s decade alone seeing a four-fold rise in manufacturing.

The late 1940s revival came in the production of coal, chemicals, shipping steel, agriculture, and restructured finance. The Tokyo Stock Exchange and the formation of the Nikkei 225 Index as a performance benchmark by 1950 allowed for more efficient capital formation.

1972: Honda’s “City Car”

Advances in all these sectors characterized the Japanese economy of the 1950s, and led to investments in heavy goods and in a variety of advanced technologies in the 1960s that captivated the world. The zaibatzu-owned brands of Sony, Nikon, Panasonic, Hitachi, Canon, Yamaha, and Sharp became household names as Japan began to produce and market high-quality goods at modest prices to consumers around the world.

By 1970, Japan’s national wealth dwarfed all countries in Asia with its per capita income, reaching for example levels 10 times greater than all of the nations of Southeast Asia combined (Mat. 94). Japan moved from regional to international dominance in 1980 as the country locked in as the second largest economy in the world for the next quarter century. Nothing epitomized the appeal of Japanese manufactures more than Honda which captured half the American market in motorcycles by the mid-1960s – a prelude of larger things to come. In 1972, Honda introduced the City Car, or “Civic.” And the rest, as they say, is history.

Pavilion at Expo ’70 in Osaka

The 1960s was the decade of Japan’s “coming out” in manufacturing and in the diversification of its trade. In 1970, Japan already ranked fifth in the world in total international trade volumes: a third with the United States, a quarter with non-Communist Asian nations, and nearly a fifth with Europe (UN figure, WIKI historical list of ten largest countries by GDP). Japanese citizens themselves followed their products. In 1960, just 120,000 people traveled as tourists overseas. By 1970, the number was one million and growing, helped by the expansion of Japan’s two premier air carriers, JAL and ANA, which had been established five years after the war.

0 Class Shinkansen (“bullet train”), 1964

A high-speed “bullet” train began service between Osaka and the capital in 1964 – just in time for Japan to welcome the world to the Olympics that year in Tokyo – with notable architecture. To help power it all was a nuclear reactor – Japan’s first of many more – which came on line in 1966 on Honshu, just north of Tokyo.

The developed nations invited Japan to join the OECD in 1966, and the spectacular Expo ‘70 in Osaka put on display for all the world to see Japan’s achievements of the 1960s. Final recognition of Japan as a cooperative and reasonable economic player on the world stage came with its hosting the 1973-77 round of the General Agreement on Tariffs & Trade (GATT) in Tokyo. Rivaled in the 1960s era only by Germany in growth and today of course by China, Japan was the sensational growth story of the 1960s rarely told, but all around us vividly today.

The city of Nagasaki today


[1] Andrew Gordon, A Modern History of Japan (Oxford, 2003), p. 241; John Dower, Embracing Defeat (New York, 2000), p. 541.
[2] James I. Matray, Japan’s Emergence as a Global Power (Westport, 2001), p. 32.
[3] Ardath Burks, Japan: Profile of Post-Industrial Power (Boulder, 1981) cited in Matray, Japan’s Emergence, p. 12.

Leave a Reply