THE RESEARCH INSTITUTE FORECONOMICS AND BUSINESS ADMiNtSTRATIONKOBE UNIVERSITY

1953

CONTENTS

Present Day Significance of Free Ports Ginjiro Shibata

Page
." 1

Development of Devaluation-Problem in Post-War Japan Kiyozo Miyata••• 17

Japan's Trade with South and South-East Asian Countries

AStatistical Analysis- Fukuo Kawata-•+ 37The Exchange Control Policy in Post-War Japan Masahiro Fujita••• 65On the OMcial Statistics of Foreign Trade in the Post-War Japan

Hikoji Katano••• 93On Business History Tadakatsu lnoue

•••

119

Problems of Regional lndustrialization in Japan Minoru Beika

•••

127

A Research of Wage lncome in Post-War Japan Nobuko Nose

•••

139

Revaluation in Japan Susumu Watanabe

•••

157

..•

171

Last-In, First-Out Inventory Method under the Japanese Tax Law

Munehiro Masuzaki
The Research Institute for Economics and Business Administration,

Kobe Universily

KOBE

ECONOMIC & BUSINESSREVIEW
1/<"iilligÅé./E.

.

THE RESEARCH INSTITUTE FOR
AND BUSINESS ADMINISTRATIONECONOMICS
KOBE UNIVERSITY

1953

1

PRESENT DAY SIGNIFICANCE OF FREE PORTS
By GINJIRo SHrBATA
There are at present more than 70 ports throughout the world,which are generally called free ports. But they so differ from one
another in character, function and in the object of establishmentthat it is diMcult to define free port in one expression generally
applicable for all these free ports. We may perhaps fundamentallydescribe it as "a port area in where goods unloaded and stored
are exempted from customs duties and formalities." That while
the foreign goods remain in this port area, the goods are exemptedfrom customs duties, shows the minimum limit of the free portfunction, and if this function is lacking we can not call it as a free

port. This function, therefore, is almost approaches to that ofbonded warehouses only with this difference that : whereas in thecase of the bonded warehouse the import procedure and the paymentof taxes on the foreign goods entered into are only temporarilydeferred, but the foreign goods enterod into and deposited in thefree port are exemPted entirely from the taxes and formalities, as
though they were in a foreign land so far as the customs laws areconcerned.

Asa matter of fact the free port that are to be regarded as
exercising this minimum limit of function are not in existence. In
reality, any operation or business more or less are permitted in afree port. On the whole the operations permitted in free port can
be classified into three classes, that is, 1) manipulation 2) processing

and 3) manufacturing. Manipulation means an operation including
the breaking-up of package, repacking, labelling, grouping, sorting,grading, cleaning, washing, mixing and other operations which do
not change the original nature and appearance of things themselves.
Processing means an operation such as shelling, toasting and grinding of grains or nuts, cutting of hides, leathers, cloths, metal plates2 GINJIRO SHIBATA
etc., lumbering, dyeing, painting, gilding, assembling of machines

and other operations which augment the value of the merchandise
without varying essentially its nature or without changing its
original item of taxation. Manufacturing means an operation which
varies essentially the nature of merchandise and changes its originalitem of taxation completely, and shall be generally called "industrial

production."

In addition to the operations above mentioned, some businessin free port often raises a question, whether it shall be permitted ornot. The most notable question is as to an exhibition of merchandise or its samples in the free port.
The scope of freedom permissible to free port does not only
regard the operation and business, but the control of free port. Thatis, whether people shall be allowed to reside within the zone or not,whether the foreign goods shall be consumed or used within thezone, and whether retail trade shall be allowed to be conductedwithin the zone or not. These are the outstanding subjects that
decide the scope of the freedom of port.

According to the facts mentioned above, free ports in existence
which have narrowest scope of freedom are these which have been
permitted only the simple manipulation, for example, Freibezirke inGermany, Free port of Stettin, Poland (if remains in the same state
as before the war), Magazini Generali in Italy and Deposito Francoin Spain.

On the other hand, the free port exercising the broadest rangeof its function is found in a country that follows the principle offree trade as national policy, and where people may not have hadcustoms duty system to begin with or levied tariff duty only as
exception on a very few imported goods, and also where generalexports and imports are most freely carried on, and where in theport area the administrative control except for peace and publichealth is not exercised at all. The examples are found in the portsof Gibraltar, Aden, Singapore, Hongkong, Makao and Ports in Baja
California State in Mexico. In these free ports, the whole territory,PRESENT DAY SIGNIFICANCE OF FREE PORTS 3
island or the administrative area on which the free port is instituted,

is designated as free area. Consequently, it is more appropriate tothink of the port as being situated in a free trade zone than tothink of the port itself as a free port. Thus the range in freedom
granted in free ports may be either broad or narrow, but taken asa whole, they are generally called free ports,
As there are degrees in the freedom enjoyed in the free ports
since old days, the definition of the conception of free port has beenvarious and diverse. We may go even to such an extreme and saythat the meaning of free port differs with individuals. An attempt
to define it most clearly and precisely is made by giving different
names to the various degrees of freedom and classifying them to afew categories. For instance, they classify them into three classesof Free Port City, Free Port Quarters and Free Zone. In the Free
Port City the entirety of the commercial port of the free port city

is regarded as a foreign country so far as the tariff system isconcerned, and the im- and exports of the goods, depositing, proces-sing and manufacture are of course free, and general citizens areallowed to abide and live in the area, In the free port quarters
a portion of the commercial port is regarded as a foreign land in

the customs system and though the im- and exports of goods,
depositing, processing and manufacture are allowed free, but general
citizens are not permitted to reside or live in the quarters. In thefree zone, the free port quarters are further made narrower inperimeter, and no processing or manufacturing is allowed, only theloading, unloading, depositing, repacking, assorting and repairing arefreely allowed. (cf. Customs Administration, by Tadaji Itagaki,
pp. 614-5, and "Free Port" in the New Dictionary of Trade andExchange, compiled by Dept. of Investigation in the Tokyo Bank.)
Others make two classifications and call the one Free Trade
Port and the other Free Port (free port in a narrower sense). The
former may be understood to mean a port located in the above
mentioned free trade region where the principle of free trade constitutes the basic policy of the region, which includes the free ports

4 GINJIRO SHIBATA
in British colonies. The latter means the port or a portion of theport that has been placed outside the customs area under a specificcondition, and actually, all the free ports, excepting free trade ports,

are thus designated, And, giving a general definition to a free port

in the narrower sense, they define free port as a segregated area
where all goods, excepting contrabands, without going through thecustoms procedure or being levied customs duties, may be unloaded

or loaded or warehoused subject to the regulations concerning
landing, depositing, sorting, grading, repacking, processing and manu-

facturing. (Foreign Trade Zone or Free Port, by the Corps ofEngineers, U. S. Army and U. S. Shipping Board, 1929; pp. 3-11).
Still others do not make any classification at all, and the freeports, free zones and so-called free trade ports are all called freeports, and the different scope of freedom granted is treated merely
as characteristic features of the port. And the nomination of freeport city is lightly understood as in the case of Bremen or Hamburg,
to mean only a city with a free port attached to it. (Mac-Elwee,
Port and Terminal Facilities, pp, 276-290)
Still others designate the free port in the narrower sense above

mentioned by the nomination of free zone (not identified with
Freibezirk in Germany), and describes it as: "A free zone may be
defined as an isolated, inclosed and policed area, in or adjacent to aport of entry, without resident population, furnished with thenecessary facilities for lading and unlading, for supplying fuel andship's stores, for storing goods and for re-shipping them by land andwater; an area within which goods may be laded, stored, mixed,
blended, repacked, manufactured, and re-shipped without paying ofduties and without the intervention of customs oMcials. It is subject
equally with adjacent regions to all the laws relating to public health,vessel inspection, postal service, labor conditions, immigration, and,indeed everything except the customs," (The U. S. Tariff Commission: Free Zones in ports of the U. S., 1922.)
Thus it will be seen that among the free parts generally called
so there are ports with very much limited freedom, that is, its

PRESENT DAY SIGNrFICANCE OF FREE PORTS 5
characteristic feature is limited to the waiving of levy of customs

duties on imported goods, while they remain in the zone. Consequently, the handling and storing of the cargoes are placed under thesuperivison of the customs oMcials, and all the phases of generaladministrative authority of the country are there exercised. On theother hand, there are ports which are exempted from all authority ofcustoms administration as a matter of course, but they are endowed
sometimes with the character of a foreign Iand in point of economic
administration. Such free ports enjoy much larger scope of freedom
than others, showing the numerous variety of free ports. Free portsof Hamburg, Hongkong and other British Colonial free ports, at 1east
up to the World War II, were of the ports of the latter description.

Within that region, the cargces were not only exempted from
customs taxation while they remained there, but people were allowed
to exercise manufacture and establish market and were also exemptedfrom porcedure of import restriction or control of the country.
However, it is the fact that the scope of the freedom enjoyed in afree port is limited to affairs of trade administration. This is thenatural consequence of the fact that the free port at present is no
more than an establishment for the foreign trade of the country towhich it belongs. Consequentry, a free port politically independent
as well, is the form that antedate the history of the free port, such
as Italian free cities in the medieval times or old Hanseatic free citiesin Germany. But the free ports that were founded since the tariff

walls had been set up over the wide range of the consolidated
territories by the modern states, have very close historical connection,and some of the free ports of the present day originated with thelimited inheritance from the free city that had been dissolved. But
their raison d'etre is entirely different.

If we describe the present conditions of the free ports and arrange
them according to the degree of the freedom granted, they are :1. The area isolated or fenced off from the customs territory

where the freedom is limited to the exemption or waiving of customs

duties and to the conduct of simple manipulation. (Free Zone;

6 GINJIRO SHIBATA
Freibezirk).

2. The area isolated or fenced off from the costoms territory,
where not only the customs duties are exempted but the in and outtransportation and storage of the goods are not subject to thesupervision of the customs oMcials, and assortment, combination,
repacking, mixing, labelling and the processing to the extent of notchanging the original nature or item, are granted to be made on goods.

(Free Port Zone; Freihafengebiet, except Hamburg; U. S. Foreign
Trade Zones, governed by the former law).
3. The free port isolated and fenced off from the customs
territory, and besides granting the manipulation and processing as
described in paragraph 2, it grants the manufacturing industry in thearea (Copenhagen Free Port).
4. The free port coming under the description of paragraph 3
with the added prerogative of exhibiting the goods and holding thesample market in the area (Hamburg Free port and U. S. Foreign
Trade Zones).
5. The free ports, discriminated from customs ports, grantcertain degree of freedom to entrance and clearance of ships, andexcepting supervision exercised in connection with peace and publichealth, no other supervisional authority is exercised. Harbor andtonnage charges are not collected, (Copenhagen Free port and Mexican free ports).

6. The free ports not isolated from the surrounding country andwith free communication between port and town and with all thephases of freedom described in the above paragraphs. (so-called"free trade port"; Hongkong, Singapore, Gibraltar, Aden).
These six classifications are made according to the degree of
freedom enjoyed in the ports, and the historical process that gavebirth to these classifications is traced in the following description:
The free cities that existed chiefly in Italy and Germany in the
Middle Ages, had been incorporated into the territories of the newly
arising states with the centralized authority, that were created withthe rising tide of national unity among the racial tribes in Europe inPRESENT DAY SIGNIFICANCE OF FREE PORTS 7
the nineteenth century. Political and economic independence of thesefree cities were dissolved, but at the occasion or somewhat laterthe commercial activity of the port cities that had been centers ofinternational economy, was made free by placing these port area
outside tariff walls of that state. This is the beginning of the free

port. Viewed historically, the free ports were founded on double
motive: 1) the formation of modern states and 2) tariff walls that
restricted the imports. If we dig still further for motives, we may
attribute the growth to the consciousness of tribal unity and theascendance of nationalism in economic policy. Standing on thisdouble motive, we can clearly see, however, the national consciousness that wanted to utilize the international character of trade wasquite active, and come to recognize certain degree of freedom forcommercial ports. The substantial function of free port had originally existed in free cities. The importation of the goods for the
consumption of the citizens was not the chief aim, neither was it

the chief aim to export their produce. The aim was to be aninternational market serving as a medium trade between the third
countries. That is to say, being collected the products of all theplaces in Europe in the port, dispatched them to distant colonies orto the East, and in return, brought back the produce of the colonies
or the East to the port and sold them out in the different cities in

Europe. Such was the chief function of the port in free cities in

the Medieval Times. Consequently,,when the unification of thestate and establislmient of the central authority was realized in the

19th century, some of the free cities, though they gave up otherpolitical or economic independence, they insisted on retaining thefreedom of the port, and on the part of the state, it could notdisregard the advantage of medium trade of the port, and theprerogative of the free port was thus established. As the first
free ports had long since enjoyed prosperity of medium trades andconstituted fiourishing markets, it seemed they absorbed the tradeof the commercial ports in the vicinity and brought about still
greater prosperity, when they were declared free. The prosperous

8 GINJIRO SHIBATA
conditions of the free ports induced other European countries tofollow suit or to make free ports. There were cities also that
their political independence had once been absorbed completely inthe central authority but regained freedom for the limit of portzones, Or there were cases of the ports that had enjoyed no
freedom before, and had been later vested with the prerogatives offree ports. Thus from the latter decades of the 19th century to

the beginning of the 20th, many free ports were established along
the coast of Europe. During the interval, some countries hesitatedto create free posts. Instead, in countries where protective measures

are strong, the government securely established the systems ofbonding and drawback. Or on the standpoint of financial or economic policy of the country, the scope of freedom granted in freeport was either narrowed or btoadened. But their attempt ofpromoting the medium trades and making the port more prosperous
is common all. But the most rationally instituted free ports werecreated in 1934 in the U. S. A. as the result of discussion andinvestigation running for 20 years. They are what are known as
the Foreign Trade Zones. For the countries that entertain various
misgivings of the utility of the free port and have no institution offree port,-for instance Japan has been discussing pro and con formany years about the advantage and disadvantage of the free port,
and is now almost discussion exhausted--the fact that the U. S. A.
enacted the law on Foreign Trade Zones and has been successively
established the many free ports in 10 odd years, must be declared
wonderful and surprising.
The Foreign Trade Zones in the U. S. A. are gradually broadening the granted freedom from the narrower scope to the wider andin 1950 manufacture and exhibition of the goods have come to be
granted, They have come to be ranked among the free ports thatenjoy the largest scope of freedom in the world. The permission of
manufacturing and exhibition in the zones has been given after many

years' struggles made by the public and private organizations
concerned in the zones. At last in 1950, the fact that the distinction

PRESENT DAY SIGNIFICANCE OF FREE PORTS 9
between manipulation and manufacturing cannot be defined andproduces both administrative and substantive dithculties led a deci-sion to eliminate the need for drawing such a distinction and topermit both operations in the zones. This decision seems ostensible
and technical. Fundamental reasons for the enlargernent of freedom
were, however, a necessity of these operations in the zones and theZone in New York has been very active in and after the War II.
For instance, during the World War the international markets in
Europe such as handled furs and skins, found safety and shelter in

the Foreign Trade Zone in New York, and started to fiourishingtransactions. This has been permanently settled in the zone evenafter the War, and became a characteristic feature of the Foreign
Trade Zone in New York. In expectation of this prosperous development the scope of freedom had been enlarged. That the Foreign Trade

Zone in New York has shown this developing tendency remarkably
is a very significant feature. This was due to the fact that New
York is already a great center of consumption for internationa
merchandise, and that various institutions had been in existence inthe zone for the instant opening of the market, and when opportunity
arrive New York succee(led to snap away the market from Europe.
By this, we may say, that we have discovered the existence of thecharacter of international market in the significance of free port.

Besides the free ports that originated with the aim of being a
medium trade, there are other free ports that have quite different

significance of existence. Ordinarily the free ports are createdactively as measures of internal administration by a country. Differing much in origin, there are other free ports that have beencreated from the standpoint of international politics, that is, several

countries, by treaty, created free ports as economic and politicalbuffer zones. For example, the free port of Salonika in Greece thathas been instituted by the treaty between Greece and Yugoslavia issuch a case. The free port of Trieste (Free Territory) is in similar

circumstances. Again, there are free ports instituted by foreigninterference to exclude the trade monopoly of one nation. An

10 GrNJIRO SHIBATA
example is the port of Dalny before the last War. Though they all
have the same function as free ports, they quite differ in purpose,that is, their reasons of existence are quite different. But eventhese free ports of latter description do not go astray from theoriginal significance of free port. tRather, they exhibit most signi-

ficantly the character of being international buffer zones. The factthat a free port constitutes a buffer zone has been hitherto looked

upon rather quite incidental than normal. The present writer,
however, believes this phase of the free port to be the most important part that it plays under the present tense conditions of theworld ; and maintains a wish that this new phase as an international
buffer zone may be included in the significance of free port.
From the above description, the significance for existence of .free

ports may be enumerated as follows:1. Significance as an instrument to promote medium trade or
re-export trade.

Viewed either historically or substantially, the medium activity
is the function connected with the reason for existence of the freeport, and without it the port can not be called a free port. Medium
trade must be distinguished from transshipment or transit-trade.
The transshipment or transit-trade renders no more service than toprovide the use of the harbor for the third country, and in strict
sense it may not be properly called a foreign trade for that country.

In most cases, the cargces come from the third country which
exports the goods provided with "through bill of lading;' andtransshipped to another ship in the port, and sent intact to anotherthird country. In this case, only the shipping equipment, leaving
the trade equipment unused, is made to render services. Excepting
the free ports that grant special privileges to in-and outgoing ships,

the mere transshipment enjoys no preferential service either in afree port or in a customs port in point of transshipping operation.
In such a situation, people find no necessity of utilizing the free

port. In medium trade, on the other hand, the traders, in mostcases, of that country, on their own account or commissioned by t'he

PRESENT DAY SIGNIFICANCE OF FREE PORTS 11
foreign traders, import merchandise from abroad. The former
may be termed "distributing trade" and the latter "go-between
trade." The goods thus imported or brought in may be re-exported
or re-shipped as they are, or processed, re-packed or at times sorted

together or mixed with other materials of different origins. This is

the form of the medium trade. The trade is mostly carried on by
the merchants of the country, but the foreign merchants often are
also engaged in the transaction. In medium trade made in the freeport, customs duties are not levied on the unloaded foreign goods,
neither it is required to go through the customs formalities. It is,thus, clear that the traders derive enormous benefit, and here is thesignificance of free port.

What is termed as re-export trade is a medium trade that has
been transacted within the customs zone, that is, it is the nameapplied to medium trade when it is transacted through the prescribed

import formalities. Or, the same term may mean the medium tradetransacted in such free trade ports as Hongkong or Singapore. The
former has no relation with free port, though the latter has it, andreexport trade is here collated apropos.

Ordinarily a term "re-export trade" is often understood todesignate the export side of the transit trade, and there are some-times cases where even the re-shipping of the bonded cargces isunderstood to be included in it. But this nomination is only apopular expression.

2. Significance as a market for international merchandise.
As a distributing center of international merchandise, geographical conditions constitute important factors of a free port, but thatthe area is exempted from the customs law is the most important ofthem all. In addition, if the exhibition of the goods is allowed in
the zone, the function as a market shall be fully exercised. The
significance of free port is well recognized in these phases. The
prosperity of Hamburg since old days and the new bonanza of New

York Foreign Trade Zone as a distributing center of internationalmerchandise are worthy of our careful notice.

12 GINJIRO SHIBATA
3. Significance as a zone for the processing and manufacturingindustry on and with raw materials produced in foreign lands.
In a country not provided with free ports the manufacturingwith foreign raw materials or processing on foreign goods have to
be executed, in principle, after completing all the import procedures.

Even with the provision of bonded factory, complicated bonding
procedures must be gone through and guaranty must be lodged ; thenthe import procedure may be postponed for a time, and under thesupervision of the customs oMcials, processing and manufacturing
may be carried on. But, if free port were instituted and processing
and manufacturing were granted in free port, no such red tapes ofimport and bonding procedures would be necessary, no duties would
be paid, no interference of customs oflicials would be made. And
work could be started immediately after they are unloaded. Thus
we can expect in the zone the growth of the industries dependingon materials produced in foreign lands. To cite the examples, theship building, the processings on colonial goods and machine assembling industries in Hamburg free port ; the munitions, metal and gilding

industries, the processings on feathers and furs, fiour mill, coffee

and victuals industries in Copenhagen free port are such cases.
Excepting the ship building industry in Hamburg, these industries
are not of large scales as compared with those in the customs zone,
but they are fully paying enterprises and constitute the industrial
zones of their own, and render no small service in the sphere ofbalancing international payments. The fact that the U. S, A.
Government recognized by the law in 1950 the enterprise of the
manufacturing industry in the zone is due to the strong desire ofthose who are acquainted with the cases in Europe.
4, Significance as faciiities of inducement to merchant ships.
At present, most of the free ports in the world grant certain
degree of freedom to the cargoes, but to the in- and out-goingships few free ports grant special treatment differing from that given

in customs ports. However, even without the special conveniencein connection with the arrival or departure of ships, the fact that

PRESENT DAY SIGNIFICANCE OF FREE PORTS 13
customs formalities are exempted economizes the hours for unloading
and loading, consequently the hours at anchor. That is, the attempt

to induce foreign merchandise naturally induces ships as well. In
spite of this fact, reports are made that free port does not muchcontribute to marine transportation. (Corps of Engineers U. S. Armyand U. S. Shipping Board: Foreign Trades Zone or Free Port, pp.
76-79.) The reasons given are:-Special privileges to trading ship
are not provided in free ports, or no better convenience in unloading

and loading services and warehouse facilities are afforded than in
the customs ports and there is no stronger inducement for ships toenter the free port. Still another reason perhaps, is the prevalenceof the usa,ge of anchoring outside the free port and dispatchinggoods into the free port by lighters. Never-the-less, when theterminal facilities are better completed than in the customs ports,
the tendency of in-and out-going ships to increase in the free ports
is clearly discerned. Again, toward the free ports that in contradiction of customs ports exempt or reduce tonnage and wharf charges
on in-and out-going ships, or simplify the arrival and departure
procedure and other favors--for instance like the free port of
Copenhagen-ships naturally incline to feel more inducement as aport of call than the neighboring customs port, provided otherconditions being equal. Even when the tonnage and other publictaxes are not exempted, the quickness of loading and unloading
services and the simplification of official procedure shorten thehours at anchor remarkably, which results to economize the navigation expenses. The free ports offering favorable advantages on thesepoints are sure to contribute much toward marine navigation.
5. Significance as a neutral zone in international economy.
International relations have, since old days, been quite delicate.

Various dangers have threatened trade from this cause. From thestandpoint of trade, economic and political insecurity in theunloading port of the goods is serious indeed. When any politicalor economic insecurity is discerned in the unloading place, free ports

are the most suitable waiting places for the cargoes. During the14 GINJIRO SHIBATA
War II, large amounts of cargoes for and from Europe foundshelter and avoided danger in the New York Foreign Trade Zone.
Again, after the War, goods destined for the various ports in China

were assembled enormously in Hongkong on account of the Communist revolution in China. These facts speak this significance very
plainly. On the details of the phase of the problem we describedin the International Economic Review, 1951 and 1952, Kobe University.'

All the phases of the utility and significance of free port thus
far described are not possessed by each existing free port. Someof the free ports combine and possess all of the functions, but it
must be understood that most of them actualize only one or two or
three of these functions. In other words, the character of the freeport is determined by the law or regulations of that country, andis affected by the conditions of location of the free port.

Further, besides the reasons given above, if, for some noneconomic reasons-for political or diplomatic reasons---a country designate a port or a zone of the port as free port, to constitute a buffer zone, declaring it internationally neutral, another significancewould be added. Indeed a free port completely placed outside theadministrative system of a country, though such as a free city has
now disappeared, but, if the United Nations designate some zones
or ports in the mandates or certain countries as free, internationallyneutral free ports, quite different from the old free city, may appear

again. Still more, if the slogun "world peace" is not to remain as
mere politico-diplomatic refrain, and if it has a real intention toactualize it, it may be thought that the obligatory creation of suchinternational buffer zones by all the countries, through the instrument of the United Nations, would be a step toward the realization.
If such internationally neutral buffer zones are to be placed under
the control of the United Nations, it would take a step toward the* Ginjiro SHIBATA: Foreign Trade Zones in the United States: Kobe University International Economic Review, Vol. I, 1951, pp. 3-67. and Characteristics

of Hongkong Foreign Trades; Ditto, Vol. II, 1952, pp. 79-126.

SIGNrFICANCE OF
PRESENT DAY
FREEPORTS
creation of "Universal State", though it is deemed as an idealist's

dream at present. In that stage of development the proper problem
of free port would have little significance. But inside the charaeterof free port, there lies hidden, very deeply hidden-alrnost subcons-

ciously-the germ that may develop toward such grand future.
Professor and Director,
The Research Institute for
Economics and Business Administration,
Kobe Universily

15

17

DEVELOPMENT OF DEVALUATIONPROBLEM
IN POST-WAR JAPANBy KIyozo MIyATAINTRODUCrl'ION

ON VARIOUS KINDS OF CURRENCY MEASURES
During the eight years since the war, Japan has achieved economic rehabilitation remarkably and her economic situation has
regained pre-war level in many respects. In regard to currency andforeign exchange, stabilization was realized in April 1949 based on
the exchange rate of 1dollar to 360yen through Dodge's plan andthis normal rate was approved internationally when Japan joined
the International Monetary Fund on August 13th 1952, The writerof this article intends to consider Japan's inflation in this past-war

period and the development of various currency measures taken
against it. Through this consideration we can understand thesignificance of the urgent questions with which Japan is now
confronted.

For this purpose, we shall examine theoretically, first of all,various kinds of currency measures taken against inflation.

The first is a currency measure, so called "Stabilizatiori
policy", taken to stabilize the currency after the ebbing tide of
infiation, when we succeeded to check the great inflation after alarge scale price-rise. This stabilization policy means to "devaluate" the old gold-parity of currency, and as consequence the old
exchange-parity, by as much as depreciation of currency and toestablish a new monetary standard on the basis of this devaluatedgold-parity and exchange-parity. Therefore, this measure may becalled "Devaluation as stabilization policy". The typical examples
after World War I were (1lerman devaluation to one-trillionth inNovember 1923 and French devaluation to one-fifth in June 1928.

18 Krvozo MrsrATA
The second is a currency measure as " Defiation policy" which
is taken up in order to make the high price level lower to the oldlevel before the inflation. Under the small-scale inflation, thisdeflation policy can lower the high prices to the old level before
the inflation, and to raise the foreign exchange rate to the old level

before the inflation. After World War I, United Kingdom, the U.
S. A., Japan and others whose war-time and post-bellum rise of
prices caused by inflation had been only two or three times as
much, restored their old gold and exchange parity of currency bytaking this deflation poIicy. These countries did not carry out
monetary devaluation as a stabilization measure and returned to
the gold standard system based on the old parity by means ofdeflation policy.

Now, if we 1ook over the currency measure taken against infla-

tion by every country after World War II, we notice that special
kinds of policy were taken up as the inflation counter-measure.
(A) Blocking of currency. Currency and deposit were blocked
in order to cut down and absorb excess purchasing power. Thismeasure was carried out first in Belgium in October 1944 andfollovved by Greece in October 1944, and then by Poland, Yugoslavia, France, Denmark, Czecko-Slovakia and Austria in 1945. In
these cases the measure was practised technically, as the exchangeof old currency for new currency, in ratio of one new currency
unit per one old unit: that is one to one.

(B) Reduction of face-value of currency. This innovation was
to devaluate the face value (par value) of the circulating currency
by a certain rate and to exchange as much old currency unit by
this rate for one unit of new currency. The examples of thisinnovation of currency were actually seen recently in the U. S. S.
R.:ten roubles of circulating currency were exchanged for one newrouble in December 1947, and in Germany: ten Reichsmarks for
one new Deutschemark. In both countries, the blocking of some
portion of the currency and deposit accompanied this method. This
reduction of face value of currency is often called also devaluation.

DEVELOPMENT OF DEVALUATION-PROBLEM IN POST-WAR JAPAN 19
But this monetary operation belongs to entirely another category
as compared with the above mentioned devaluation, that is, devaluation of gold'

parity of currency and foreign exchange parity of thegold standard. The former might be called gold devaluation andthe latter as face value devaluation.

In many countries after World War I the gold devaluation was
the stabilization policy after inflation, while this reduction of facevalue of currency (face value devaluation) after World War II was
the deflation policy adopted as a measure against infiation which
was in progress. Therefore, the two kinds of devaluation havedifferent purposes and different effects,

This reduction of face value as well as the blocking of currency
has the same purpose and the same effect of cutting off and nullify-

ing the excess purchasing power which is the promoting factor of
inflation. In this sense both measures have the effect of checking

inflation.
'
Let us consider the nature of the currency measures, whichwere adopted in Japan for each period during the eight years after
the war, in the light of the nature of various kinds of currency

measures above mentioned. The post-war time of restoration ofJapanese economy and currency may be divided into four periods.
(1) From August 1945 to the end of 19ca. (2) From the beginningof 1947 to the end of 1948. (3) From the beginning of 1949 to June

1950. (4) From June 1950 to present day.

I. PERIOD OF INFLATION FOLLOWrNG THE SURRENDER
First period of chaotic inflation: from August 1945 to the endof 1946.

At the time of the surrender the accumulation of money property, mainly consisting of bank notes, bank deposits and national
debts, etc. had greatly outbalanced physical assets which had been

greatly consumed during the war. And this unbalanced condition
itself contained already the possibility to a dangerous inflation. !naddition to this the remarkable expansion of purchasing power due

20 KIYOZO MrSrATA
to various eauses accelerated the rise of prices and the first inflation

immediately after the end of the war came out. The first cause ofthis inflation was the reckless use of Extraordinary War Expendi-

tures. The expenditures amounted to 26,600 million yen during
the three and a half months from August 15th to the end of
November 1945, when Japan received the order prohibiting the useof Extraordinary War Expenditures from the G.H.Q.

The second cause was the loan of banking institutions forindustrial firms which came out in place of the Extraordinary War
Expenditure after its prohibition order. Amounts to ee, 5co millions
yen were released from the time of surrender to the end of Jan-uary 1946. As this amount was covered by the credit expansionof banking institutions based on the credit of the Bank of Japan,
the second cause became a powerful factor for inflation.

The third cause is the withdrawal of deposits. The awaitingpurchasing power accumulated by the forced saving during the war,•was actualized by loosening the government controi and by making
popular feeling easy from war time tension. From about Noveinber
1945, inflation was spurred on by the expansion of banknotes andthe withdrawal of deposits. We can see that, as in the Table 1,
the Bank of Japan's note issue had increased twofold from 30,3oo
million yen in August 15th 1945, to 61, 5oo million yen in February
1946, and the wholesale prices had risen by 2. 15 times during thesix months directly after the war.

In these economic situations, Government planned a generalmeasure against infiation, the center of which was "the Emergency
Financial Measures Ordinance" issued on February 16th 1946. This
Ordinance contained the Bank of Japan's note Deposit Ordinance,

Emergency Property Investigation Ordinance, Food Emergency
Measures Ordinance, Hoarded Goods Emergency Measures Ordinance, Price Control Ordinance, Post-war Price Counter-Measure

Basic Summary, and Emergency Employment Counter-Measure
Summary. Here, we shall refer only to the important points ofthese currency measures.

DEVELOPMENT OF DEVALUATLION-PROBLEM IN POST-WAR JAPAN 21(1) The present deposit shall be blocked on February 17th.
(2) The current bank-notes of 5, 10, 20, 1oo, 200, and 1,OOO
yen shall lose their compulsory circulating power after the date ofMarch 2nd and shall be exchanged by March 7th, in equivalentvalue for "New yen" issued on February 25th. In this exchange,
New yen shall be delivered within the limit of one hundred yen perhead, and excess amount over this limit shall be blocked as depasit.

(3) The blocked deposits can be drawn out in cash within
the limit of three hundred yen for the chief of the household andone hundred yen per head for the members.

(4) The future salary and wages shall be payed in cash
within the limit of five hundred yen a month and in blocked
deposit over the amount.

(5) The deposit of new yen shall be free deposit and its
withdrawal shall not be restricted.

By this Emergency Ordinance, the inflated currency since thesurrender decreased to one-fourth. While the issued amount ofBank-notes was 61,8oo million yen on February 8th, it decreased to15,2oo million yen on March 12th, when the depositing of old yen in
the banking institutions was finished. That is, by the exchange ofold yen for new yen and the blocking of old currency and deposits,
the amount of currency retrenched amounted to 46, 6oo million yen.

But as the currency still increased even after that time, theGovernment continued to take up various kinds of counter-measuresagainst currency expansion, which, however, could not check the
inflation. And by the amendment of Emergency Financial Measures
Ordinance on August 11th 1946, some part of the blocked deposits
was frozen for some time, in relation to the cancellation of war

indemnity. In short, this new measure aimed at preventing theshifting of the loss of the banking institutions, caused by the cancella-tion of war indemnity, to the small scale depositors ; and also aimed

at guarranteeing the payment of these deposits by the government.

(1) The personal frozen deposits on August 11th, are divided
into the first restricted deposit and the second deposit.

22

KIYOZO MIYATA

Table 1.

Issue of the Bank Note and Price Irtdex
Periodannotel(million
yen)

1937Jun.
Jul.

19ggDec.
1939Dec.
1scODec.
1941Dec.
1pa2Dec.
1943Dec.
1su4Dec.
1sc5Jul.

(Aug.15)
Aug.
Sep.
Oct,

Nov.
Dec.

1946Jan.
(Feb.16)(Mar.12)
Mar.
Apr.

May
Jun.
Jul.

Aug.

Sep.
Oct.

Nov,
Dec.

1947Jan.

Feb.

Mar.

Apr.

May
Jun.

JuL
Aug.

Sep.
Oct.

Nov.
Dec.
1948Jan.

1,640
1,579
2,754
3,6ro

4,T7
5,978
7,148
10,2es
17,745as,ca6so,30042,30041,426ca,1ea47,74855,4co58,5co61,8pa15,204
23,17328,17336,31r)42,75849,7so57,571ou,43570,as974,81693,so7100,ouO
1oa,rs9
115,726
rz2,399
129,685
1se,320
143,745
1oo,os3
156,416
167,os5
178,158
219,141
218,ca8215,319
218,774
220,igO

Wholesale Price2

-

1oo.O
1os.5

11&2
127.5
141.3
1os.3
163.5

IM.6
th8.6

nv

266.4
291.6
299.2
su1.5
,r-31.5

6ee.3@6es.Oum

947.7
1,209.t•)1,241.1
1,294.4
1,378.1

5,Ml.7

230,587

Aug.

Nov.

254,209ee2,112
2ro,512294,744Dec.

3s,2go14,M7.0

1949Jan.

341,575

15,os2.6

Sep.
Oct.

-

3es.3
467.5

4n.7
5oo.4
532.7

M7.5

pt1,seorMay

2.k3,498%3.2@2os.9

607.5
612.8
662.0
os9.4
713.1
723.6
742.9
933.5
973.3
1,076.0
1,467.8
1,831.62,oo1.02,th5.0

Jun.

Apr.

1ce.8
112.7
115.7
124.3
268.6

1,571.6
1,585.2
1,712.6
1,rs4.3
1,844.9
1,871.91,sa1.8
2,414.9
2,518.2
2,615.2
3,797.0
4,746.05,2ro.7

Jul.

Mar.

1oo.O

1,"2.1

6,3rs.9
6,611.3
6,745.9
6,819.8
6,873.7
6,ev3.96,9ss.4
7,440.3
10,664.7
12,492.8
13,511.4
13,754.2
14,7ea.3

Feb.

-rm
nt
-H
-wn

Z4M.7

2,boO.2
2,607.6
2,ca6.6
2,657.2
2,665.0
2,701.5
2,876.2
4,122.7
4,829.4
5,223.1
5,317.0

5,6M.7
5,739.5
5,822.9Black

MarketPrice3Wholesale Wholesale
PriceinPricein
U.K.4
U.S.A.4

H Å~91- X1oo
X93
X.95•X91 X126-nv- X114
X119 X150
X153' X121 X1thH "- -H--- --. H
H --- rm
m --m
' m
um
-- --nd
in
m
X176
. H
--- ------ -mndinm-m- wwnd--- in
min
-H
im
im
-nv

Å~1oo

•X'89

•X101

m-.---

Å~.1coX.147

L..-.----

•X123

1oo
9.1

108
122
169

@19,1
1ro
162
173
181
178

Å~.140

•X161

mne-

IM

159
168
190

223

Å~.176

th4

wt

3e4
348
370
419
456
452
478
,oo8

519

t-rri

H.nt

--tt.-

tt...-tJ

fy58

596
617
646
674
710
7oo
777
744
744
746
749
769
775

X.191

tt.-"

Å~.202-Mt.tJ

t.--

mn.7

-rm

tL-

-r.Ttr.t-Tm

t.T.t.-t

L..ny

186

ax

nsSAPAN
bEVELOPMENT OF DEVALUATION-PROBLEM IN POST-WAR
Feb.

322,448
312,547
315,932
305,937
300,628
295,5su
298,201

15,555.3
15,622.8
16,337.8
16,661.6
16,600.3
16,613.2

Sep.

{ro6,th2

Oct.

303,822355,311
320,397
320,397
311,810

17,201.2
17,369.9
17,375.8
17,356.4
18J1ca.3
17,983.7
18,024.2
18,078.1
18,165.9
18,253.6
19,213.0
20,216.5
mo,os1.9
21,383.5

Mar.
Apr.

May
Jun.

Jul.

Aug.

Nov.
Dec.
1950Jan.
Feb.

Mar.
Apr.

May
Jun.

JuL
Aug.

Sep.
Oct.

Nov.
Dec.

1ea1Jan.
Feb.

Mar.

Apr.

May
Jun.

Jul.

Aug.
Sep.
Oct.

Nov.
Dec.

1952Jan.
Feb.

Mar.
Apr.

May

Junr
Jul.

Aug.

Sep.
Oct.

Nov.
Dec.

1953Jan.

311,M3319,6th
310,404

Ml,184
319,809324,618
328,781344,689
eo3,575
422,063

397,mo399,Wl396,so7
410,O15399,332
4on,7ou
4co,025
414,705
416,359
425,900
432,540,506,385
ca7,ofeo

457,2T
as7,576
462,481"4,O02
g61,223

ss404
d64,223
463,O09476,243
486,438

576,Bl519,764

Feb.

521,1{vrMar.

515,9T

Apr.

May

517,710501,13(S1&897.7

M,1ee.2
22,550.5
23,8pt.6
25,127.3

26,M3.9

or,M.6
27,704.2
27,112.926,9ss.4
27,616.1
27,987.2
28,473.1
os,452.9as,2oo.6•28,350.5
28,st2.5
27,9ee.5
26,166.0
27,ss9.2
27,561.7
27,ro5.4
27,6eo.9
or,6sc.7
27,525.7
27,200.6
28,1os.O
27,6os.5
27,en2.9
27,842.927,7os.6
27,787.4
27,917.5

6,O19.4
6,Og9.,3

6,315.6

6,"O.96,417.4
6,425.2
6,532.1
6,649.5
6,714.7
6,717.3
6,709.5
6,998.9
6,952.0
6,967.6

6,98&4
7,ma.4
7,056.3
7,457.9
7,815.9
7,995.0
8,266.3
8,555.7
8,717.4
9,210.2
9,713.5
10,pa1.1
10,735.7
1O,709.6
10,540.6
10,4mo.2
10,675.1
10,816.5
11,O06.9
10,998.9
10,901.5

10,9M.5
10,9ge.4
10,818.4
10,692.8

IO,6T.3
10,6ss.1

10,6T.5
10,•677.3

10,683.6
10,640.7
10,515.0
10,496.610,6ee.8
10,763.3
10,763.3
10,732.6
10,741.8
10,790.2

7ro
ro1

183

am
su

1sa
1ee

eo1
786
765
733
7ou

685
6su
6ea
5rs
533
4ee
481
4eo
500
ff9
5ro

M7

5rs

am

6e4

6"

670
6gg
678

ms

6es
630
633

am

63E5

6ss

'---v
---nd
--

Jun.
516,ea2
Source : 1. Bureau of Statistics, Office of the Prime Minister. Japan

Note:

IM
IN

1rs
177
1rs
176
176
175
176
177

IT

177
181
1sa
189
1ee
196
1ss
1ee

m
209
213
213
213
212
211
pt8
2oa

am

206

ms
ms
am
206
feo6

ee4

ax

mo4

M4
ax
ax
202
2ee
eo1

eo1
,eo1
eo1
eo1
eo1
201

Statistical Yearbook 1952.
2. Price Index of Statistics Department of Bank of Japan. Japan
Statistical Yearbook 19ss.
3. Index number of black market and free prices in Tokyo(consumer's goods) by Statistics Department of Bank of Japan.
4i Toyo Keizai Shimpo; Monthly
Statistics.
1sc9-vNov.
Oet.
1953.

•X average of the year.
average ofthe@month.

pt3
mo3

ms
213
213

210
211
212

218
221

m
m
225
226

am

m

236

238,
pt2

am

th7

am

as9
276
rs1

ms
ma
ee4

as5

tw
ms
299

sw
301
mo
307

am
se5

mo
301

am
am
ms
296

ue
298
am
301
297
301
305

ax

303

24 KIYOZO MIYATA(2) As regards the individuais: either 4,OOO yen per head of

the family (limited to 8 members a household) or 15,OeG yen in
total for the household depasits at each banking institution, makes

the limit of the first restricted deposit.. The amount more than
this limit makes the second restricted deposit. Next, as reagrds
corporations: less than 15,OOO yen at each account makes the first
restricted deposit,(3) The payment from the first restricted deposit follows theformer payment rules of blocked deposit.
(4) The second restricted deposit can be payed out only inthe case of payment of taxes and repayment of old debt.
The payment of the first restricted deposit is guarranteed by
the government for all the banking insti'tutions. The second restricted deposit is frozen for some ,time except for payment of taxesetc. And if there were any reserve power for payment after the
adjustment of banking property, they have to be gradually transferred to the first restricted deposit to this limit. Therefore, thedepasitors who had a large deposit in one banking institution, weregreatly affected by this measure. Through this measure the maldistribution of purchasing power was adjusted.
Thus, the currency adjustment in post-war Japan was carriedout, not by the reduction of face-value of currency, but by theblocking of currency and deposit. The Emergency Financial Mea-sure Ordinance in February had reduced the excess purchasing
power and adjusted the maldistributed purc.hasing power. And theestablishment of the second restricted deposit in August strengthened

the effect of correcting the maldistributed purchasing power.

II. PERIoD OF EcoNOMIC REHABILITATION
Second period of economic rehabilitation through Reconstruction Finance Bank inflation: from the beginning of 1947 to the endof 19os.

The above mentioned measures adopted against inflation did notstop the inflation, and it was again accelerating. But during thisDEVELOPMENT OF DEVALUATION-PROBLEM IN POST-WAR JAPAN 25
inflation accelerating process, various reconstruction measures werecarried out, which proved successful to some degree. Thus at theend of 1948, inflation became somewhat less active and productive
power increased. The characteristic of this period is that though
the inflation was increasing yet the level of production also increased, and the economic rehabilitation succeeded to some degree.
' In the second half of the year 19co, the Government alreadyset about to endeavor to bring about economic rehabilitation. For
example, the governrnent founded the Economic Stabilization Board
in August 1946, and decided on the Order of Urgent Promotion of
Production of Chemical Fertilizer in June, the Electric Power Consumption Control in August, the measure for Increased Productionof Coal in September, the Three Year Plan for Reconstruction of
the Textile Industry in October, the Execution of Reconstruction
Finance Bank Act in October and the adoption of "Priority Pro-

duction Program for Promotion of Production of Coal, Iron andStee1" in December (industrial productions program based on priority

system).

The following three were the most important factors for
economic rehabilitation in this period. First was the accommodation of industrial funds by Reconstruction Finance Bank. This bankloaned the operating funds to the amount of 37,6oo million yen, andequipment funds to the amount of 94,300 million yen. The objectsof this loan was the large-scale firms in the important industry, ie.
coal, marine transportation, electric power, fertilizer, iron and stee1,

textile, and so on. As most part of this loan was raised by theissue of reconstruction finance debenture, and 80 percent of thisdebenture was held by the Bank of Japan, this Reconstruction
Finance Bank Loan was not only an important factor of economic
rehabilitation but also a powerful cause of inflation at that time.

Second factor of rehabilitation was various kinds of subsidies
paid out from State finance. Subsidy of price differentials which
was paid for coal, iron and stee1, manure, etc. amounted to 23,800
million yen in 1947 and 62,5oo million yen in 1948. This government

as KrYOZO MrYATA
funds could guarrantee certain profit for fundamental industries andserved to the accumulation of capital and the increase of productive

power, but at the same time, became a main factor for financeinflation.

The third factor for rehabilitation was American aid contributed to the industrial reconstruction of post-war Japan. Ratioof aid on the total amount of Japanese import was 77 percent of
total 526 million dollar in 1947 and 68 pe, rcent of total 683 million

dollar in 1948. This factor contributed greatly to the economic
rehabilitation of Japanese industry, and moreover was the counterpower against inflation.

The first cause of infiation in this second period was the failurein execution of the Emergency Financial Measure in the spring
19ca. Because of the failure in the treatment of this blocked deposits measure, it was impossible to check the realization of thislatent purchasing power and to effect proper money policy necessary
to stabilize the value of New yen.
The second cause of infiation was the finance inflation brought
about by the price differential subsidy and monetary infiation produced by the Reconstruction Finance Bank loans.

Although the currency was actually reduced from 61,8oo to
15,2oo million yen by the Emergency Financial Measure Ordinanceissued in February 1946, it rose again to above 1oo,OOO millions yen

in the beginning of 1947. The wholesale prices had been continuously advancing ever since. The price index of 750 at the endof the war jumped up to enormous figcires of 2,326 at the biginningof 1947, taking pre-war period as 1oo. That is to say, on thestandard of 1oo at July 1945, immediately before the end of the war,
it advanced to 713 in January 1947, to 2,607 in January 1948.

In the midst of this increasing inflation, people were anxious
to have some drastic measures put to effect to curb the inflation.
The rumours of reblocking New yen, or devaluating the face-valueof currency were heard everywhere, which drove our people toextreme anxiety. The successive Finance Ministers had to plead

DEVELOPMENT OF DEVALUATION-PROBLEM IN POST-WAR JAPAN 27
at every occasion that the Government would not resort to suchdrastic currency measures.

Since the information regarding the innovation plan of currency

in West Germany in 1947 which had been reported to have been
proposed by Mr. Dodge, especially since the practice of innovationof currency in the U.S. S. R. in December 1947 and that in Germany
in June 1948, the currency innovation, as a measure to curb infiation,

Table 2. WaS SeriOusly considered in our country.
IndexofIndustrialproduction BUt dUring this 2nd period after thewar, from the beginning of 1947 to the
1934-36 average= 100
PeriodAmountof

1937

128.6

1938

141.1

end of 19ng, no monetary innovation
measure was taken, but at the end of
this period the encouragement of tax
collection and coordlnation of public

1939

146.6

finance played an impartant part to slow

1940

147.9

1941

150.0

1942

145.6

Production

1943

159.7

down the ever-spreading inflation. In
the end of 1948, the level of production was raised by 60 O/o as compared

1944

176.2

with that of the previous year, and here

1945

63.2

we were able to see the dawn of econo-

1946

39.2

mic stabilization.

1947

47.6

1948

67.1

1949

86.6

teristic feature of the currency innova-

1950

101.9

tion plans rumoured about during the

1951

133.9

second period of inflation, we might say

1952

X135.41953

Å~.163.0

Source;Index of Economic
Stabilization Bureau(X Monthly Statistics ofBank of Japan)

If we carefully abstract the charac-that it chiefly consisted of the reductionof the face-value of the currency as in
the U. S. S. R. and in Germany.

This was one of the monetary measures intended to curb the inflation by

reducing the purchasing power at the time when the inflation was
could be found many reasons for not adopting
in progress. There

Germany and the U.S.S,R. we sawsuch measure in Japan. In
enormous unbalance betweenthe expansion of currency and thens KrYOZO MIYATA
level of oMcial price and the rate of foreign exchange, and therefore

it was necessary and also possible for both countries to adjust thisunbalance by curtailing the excess purchasing power caused by the
expansion of currency.
Let us examine this situation in Germany in detail. Despite
the currency being expanded 10 times and bank deposit 13 times,
prices and wages under control were not much different from thoseof pre-war period. The index of living expences based on the controlled prices was not raised higher than 27 % of that of pre-war
level. As the excess purchasing power was facing the diminishingsocial products cut down to one third, the advancement of blackmarket prices was inevitable. The proposer of Dodge's plan pointed
out that "the black-marketeering in those days was carried on by
the existence of unlimited hoarded money." The post-war economy
of Germany was characterized by the unbalance between excess currency and under-production. It was also characterized by the extreme unbalance between excess purchasing power and low oMcial
prices. Moreover this excess and maldistribution of purchasing
power encouraged the rise of black market prices, and made it difficult for people to maintain their living by the legitimate route ofsupply under oMcial prices. The function of currency was lost andthe barter system in black markets did harm to the production itself.

While the currency was excessive, the government tried to maintainthe orncial price of staple commodities and the rate of foreignexchange to pre-war level by strict control.

Only under such objective circumstances, that oMcial prices
and the othcial rate of exchange were kept unchanged in spite of
the increase of currency and the rise of black market prices, it waspossible to put into practice successfully the device of reducing theface value of currency. Because this reduction of face value of currency meant simply a reduction of face-value of circulating currency

and some kind of deposit, without actually reducing at the samerate the prices and exchange rate.

Therefore under the situation that the oMcial prices were raised

DEVELOPMENT OF DEVALUATION-PROBLEM IN POST-WAR JAPAN 29
ten times and the exchange rate reduced to one tenth, the ourrency
would expand ten times correspondingly, if they carried out the planof reducing the face value of circulating currency to one-tenth, theprice level and the exchange rate untouched, a new unbalance would
easily start again.

Therefore, should anyone be worried about the similar currency
measure that might be adopted in our country from the fact in Ger-

many and in the U.S.S.R., he must be blamed to lack the know1edge. To speak about our own country in 19ng, (for instance inJuly) the currency being expanded 150 times as compared with prewar level, the oMcial price level having risen 110 times, and therate of exchange being lowered to one eightieth as we have seen in
the military exchange rate of $1 to \270, there was no ground to
reduce only the face-value of currency down to one tenth and tomaintain the price level and rate of exchange unchanged. If thepolicy of reducing the face value of currency were taken under suchcircumstances, another new bad unbalance would occur between thecurrency and the prices and the rate of exchange, and this would
cause only the economic disturbance uselessly.

IJI. PERIOD OF CURRENov STABILIZATION
The third period of currency stabilization: from the beginningof 1949 to June 1950.
The request for stabilizing economy and currency was made to
Japan by the U. S. A. government, when the effect of aid for economic
rehabilitation had become apparent. The nine Principles of economic

stabilization were already published in the end of 19as. In Feb-

ruary 1949 Mr. Dodge proposed a plan regarding to these principles of economic stabilization. The achievement of balanced publicfinance and establishment of single rate of foreign exchange were thetwo main points of the plan. The suspension of the accommodationby the Reconstruction Finance Bank, the gradual curtailment ofsubsidies and the retrenctment of the governmental investments toindustries were all proved to be very effective to counteract the30 KrYOZO MIYATA
power of inflation and to prepare the way to currency stabilization.

When the restricted foreign trade was opened to traders for the
first time in August 1947, the agents carrying the foreign trade were

the G.H.Q. and the Board of Foreign Trade. The G.H.Q. determined dollar-price of export goods on the basis of world current
prices. On the other hand the Board of Foreign Trade bought export goods from traders on the basis of oMcial home prices and soldthem abroad. This system was called "Firm Price System," inwhich there was no direct connection between dollar and yen, andtherefore there arose no problem of dollar-yen exchange-rate. Since
the end of the war the military rate was fixed. In December 1945

$1==\15. In March 1947 $1 = \50. In July 1948 $1=\270.
Since that time Japan adopted plural exchange rate for export goods,

the maximum of which was $1=\600. At the beginning of 1949
stabilization plan of exchange rate was made, according to which
the maximum price had been lowered down gradually and the pluralrate was simplified by steps. At last it was fixed at $1=\360 on
April 25th 1949 by the Dodge's plan.
The establishment of the single rate of foreign exchange proposedby Dodge's plan was a typical pattern of the so called "devaluation
as stabilization policy after suspension of the inflation." Theoretically there are two ways of currency measure, when an inflationis once checked. One way is to adopt the measure of deflation torecover the money value to pre-inflation level. That is, to restore
the price level and exchange rate to the former level before the infiation. If this measure to be taken after an immense• inflation, it will

introduce a new disturbance and disorder into the economy. Therefore the restoration of money value to former levels by deflation is

impo$sible after a large scale infiation. It was absolutely impossible to take this measure in Germany in 1923 when the hyper-infiation raised the price level to more than a trillion times. Whenthe price level in Japan had jumped up to such a high level of morethan 160 times, it was almost impossible to restore the price leveland exchange rate to pre-war level by this deflation policy.

DEVELOPMENT OF DEVALUATION-PROBLEM IN POST-WAR JAPAN 31
Another way is to admit the present price level and exchange ratecaused by inflation as ex post facts, and adopt a stabilization policy

maintaining this present level of money value. For this purpose, itis necessary to devaluate the old exchange-rate of currency before
inflation in proportion to the depreciation of money value. The
devaluation of the old gold parity and exchange parity of currency
which are carried out by a establishment of a new parity can beicharacterized as the stabilization policy after the infiation.

Now in Japan the foreign exchange rate of $1 to \soO, which
was established by Mr. Dodge, was said to be computed on the basisof purchasing power parity theory. The rate of Japan and the U.
S.A. exchange had been $1 to \3.47 before the war in 1937. During
the period of February 1937 and 1948 the price level in Japan had
advanced 163 times, while it had advanced 1.82 times in the U.
S. A. According to this theory the normal rate would be calculated
163
by \3•47
Å~ 1.s2 =\310•77• In those days Japanese prices were stillfacing a bullish tone and so the rate was decided at somewhat lower
than this normal rate.

Therefore this operation of fixing exchange rate at $1 =\360
belonged to the type of "Devaluation as Stabilization policy after
the suspension of inflation." As the consequence of this exchange
devaluation, it was requested to devaluate the gold-parity of Japanese

yen unit or to raise up the purchasing price of gold. We may saythat Japan's devaluation of gold-parity and exchange-parity of the
pre-war period was caluculated at one to three hundred. When wereflect the world crisis in 1930's, the U. S. A. had realized the dollar

devaluation by 40% setting 1 ounce of gold at $35 on January 31st,1934. So if the rate of exchange be calculated at that time by theold gold parity of Japanese gold standard (\1 for 750 milligram ofgold) the Japan and the U.S.A. exchange parity should be $1 to\1.185. Judging from this old gold-parity the settlement of the new

exchange rate of $1 to \360 means the devaluation of exchangeparity of Japanese yen to about one three hundredth. The oMcial
price of gold which had been \1,33 per gram was now raised to32 KIYOZO MIYATA\402, which means raising up the oMcial price of gold about threehundred times. Although this currency operation was properly astabilization policy after the infiation, it 1ed Japan into a kind ofstagnation, and her export as well as industries began to suffer"stabilization crisis". Up to this time Japan had adopted pluralrate system of foreign exchange, the highest of which had been $1
to \600. Now the new rate was too high for various export goods
and consequently Japan had to face a diMculty in exporting her
goods. And effort had to be made to lower the cost of production
by industrial rationalization. Hereaphase of depression appeared,
which was often called dis-inflation.

Just five months after the fixing of exchange rate in Japan, Eng-

land carried out devaluation of pound-sterling by 30.5 9o on 18th
September 1949 and more than twenty countries followed her atonce to take up the similar measure. This devaluation of poundsterling and other currencies raised the problem of devaluation ofJapanese yen, Asa result of this pound-devaluation, exchange rateof Japanese yen to pound sterling was raised from 1,450 yen to 1,O08
yen, and prices of Japanese export goods became 440/o higher throughthis pound devaluation This event spurred the decrease of ourexport and the depression of our industry which had been alreadyin existence since the currency stabilization in April 19rs. Therefore

the devaluation of yen, after England's example, was requested byexporters and export goods producers in Japan.
"After the devaluation of sterling and other associated currencies in September 1949, exports from Japan dropped heavily, owing
mainly to anticipation of the devaluation of the yen. Faced withthis situation, the Government announced that the yen would not be
devalued and decided on consolidating measures to improve tradeconditions, e,g., utilization of United States aid for the purchase ofcommodities from non-dollar areas and the conclusion and consolida-tion of trade agreements requiring both parties to balance exports
and imports."" Thus the governnaent did not resort to the currency
measure oi the devaluation of yen to recover the export trade. And

DEVELOPMENT OF DEVALUATION-•PROBLEM rN POST-WAR JAPAN 33
he thought it wise to counter-balance the effect of pound sterling
devaluation by lowering cost of production through industrial ratio-

nalization. The business depression was actually deepened, but thesituation was quite changed when the Korean War broke out andthe economic boom appeared.

IV. PERIoD OF THE KOREAN WAR
Fourth period of the Korean War Boom and its reaction:from
June 1950 to present day.

In June 1950, the Korean War broke out and drove off the depression caused by the currency stabilization. The economic situations were painted anew. The problem of congestion of cargoes was
all settled by special procurement and by the promotion of export.
Also various industries raised their level of production. On theother hand, the prices of import and export goods rose rapidly, On
account of increase of production and the rise of prices, exportindustries and those connected with special procurement realized
large profits, and a general boom was developing. But since February 1951 the reaction of this boom cropped out. No sooner had
the expansion of armaments in the U. S. A. been slowed down thanthe depression spread all over the world. Even in Japan, a depression had to be faced as a reaction of the boom. Moreover, on July
27th 1953 the truce of Korean War was achieved which reduced thespecial procurement and drove Japan into an excess of imports overexports. During the period of 1951 and 1952 our normal foreign
trade turned out to be an excess of imports and this deficiency wascovered by special procurement which adjusted the balance of theinternational accounts. But now the special procurement was reduced, and the aid from the U.S. A. had come to an end in June 1951,
and it was urgent necessity to establish a self-supporting economy
which can maintain a balance of exports and imports without any
aid and special procurement. In order to accomplish this aim, it* Economic Commission for Asia and the Far East."The Economic Survey of
Asia and the Far East, 1950 ", Part r, Chap. 12. sec. 4. p. 347.

M

Kryozo MIYATA
is a categorical impera-

Table 3.
Wholesale Price lndex
PeriodWholesalePric
inJapani

1950Jun.24
Jul.15

Aug.19Sep.16
Oct.21

Nov.18
Dec.16

1951Jan.20
Feb.17

Mar.17
Apr.14

May19
Jun.16

JuL21
Aug.18
Sep.15
Oct.20Nov.17
Dec.15

15Z8
157.6
157.5
158.7
155.7
153.3
150.0
151.4
150.8
152.2
152.2
152.7
150.5
152.0
155.0
153.9
152.1
150.9
150.9

Mar.15Apr.19May17
Jun.21
Jul.'19

Aug.23
Sep.20
Oct.18

Nov.15
Dec.201953Jan.17
Feb.21

Mar.21
Apr.18May16
Jun.20(endofmonth)

100.0
103.0
113.8
116.1
121.3
126.5
127.3
134.8
149.4
155.9
165.9
162.0
158.0
156.8
153.3
155.7
161.4
161.3

1952Jan.19
Feb.16

holesalerice
inU.S.A.2
100.0
103.8
105.1
106.1
106.1
109.3
111.5
114.8
117.0
117.0
117.0
116.4
115.9
114.2
113.2
113.2
113.2
114.3
114.3
113.2
113.2
113.2
112.2
112.2
112.2
112.2
112.2
112.2
111.2
111.2
110.1
110.1
110.1
110.1
110.1
110.1
110.1

tive to increase exports
in normal foreign trades.

But now the greatest
disturbing factor for pro-motion of foreign trade
was the weakness of international competitive

power owing to the highcost of Japanese export
goods. Now, if we compares the price of Japa-

nese main goods withinternational prices it is

as shown in the Table 3.

The main cause of thehigher prices of our goo-ds as compared with theinternational prices is dueto the advancement ofprices during the Korean

War period In Japan theprices of manufactured
goods rose 85% between
the outbreak of the Korean War and March 1951.
In the reaction period
they restored almost theformer level only 50 o/ohigher than the pre-Ko-

Source: 1. Annual economic report 1953: ap-

rean-war level. Today

pendix table 52. Weekly Wholesale

our prices of many ex-

Price Index.

port goods are 20% to
30 0/o higher than the

2. Toyo Keizai Shimpo: Monthly
Statistics Oct. 1950. .-v Oct. 1953.

DEVELOPMENT OF DEVALUATION-PROBLEM IN POST-WAR JAPAN 35
international prices. The recent deerease of the foreign exchange
funds was the result of the unfavorable balance of international
trade. Although the prerequisite for self-supporting economy is tobalance the international accounts by promoting exports, the comparative high price of export goods is a main obstruction to thepromotion of exports. Therefore, in order to adjust the high costof our export goods, various measures can be considered.

(1) Reduction of the cost of production by industrial rationalization to enforce the international competitive power.

(2) Reduction of general price-level through Deflation policy:
the Budget retrenchment policy and money tightening policy.

(3) Export promotion policy by the Government. The
measures to reduce the interest on money, to practise special
treatment in taxes, or to deliver sudsidies to the export goods.

(4) Adoption of the dual price system between foreign anddomestic market by the exporters. The lower price for export andthe higher price for demestic market.
(5) Devaluation of the exchange-rate to make our prices ofexport goods cheap. As the general prices of export goods arehigher by 20-30 %than the international prices, the devaluation of
the yen is requested to counterbalance the effect of this higher
prices in the interinational trade. Here the devaluation problem
appeared once more.
As regards the last currency measure, it is now quite diMcult
to devaluate the present exchange rate, for Japan joined the I. M. E

in August 1952. Moreover, to such a country as Japan, whose economy depends largely on the import of necessary goods as foodstuffs and raw materials, the devaluation policy is not suitable,
because it causes a rise of internal price level again and somerepercussion on the export trade.

The Government chose actually the orthodoxal way of the defiation policy and the industrial rationalization to tide over thediMculty of international trade. The present industrial rationalization or adoption of modern machines in basic industries to make

36 KIyozo MryATA
the cost of production lower is the prerequisite of self-supporting

economy in Japan. And judging from the present circumstances,
it is the wise measure that the Government avoides the currency
measure of the yen devaluation to adjust comparative high priceof export goods, and is making positive effort to pull down thehigh cost through general deflation and industrial rationalization.
Professor of Economics &Econemic Policy,
Kebe Universt'ly
Publications by the same writer.

Books.
1. Translation of "Die staatliche Theorie des Geldes. by G. F. Knapp." 1922
2. 0n Devaluation. 1934.
3. Theory of rnoney-economy. 1941.
4. Inflation and Devaluation. 1947.
5. Theory of Devaluation. 1947.
6. 0n Currency Stabilization. 1949.
Articles.

1. Three Periods and 3 Types of the Inflations from 1914 to 1928.
(Resume in English) Vol. I. Kobe University International Economic Review,

Annual Report I, 1951.
2. The Position of Japan in the Asian Economy. -Especially in Relation to theReparation Problem. (in English) Annual Report nl, 1953.

37

JAPAN'S TRADE WITH SOUTH AND
SOUTH-EAST ASIAN COTJNTRIES-A STATISTICAL ANALYSIS
By FuKuo KAwATAI
In the pre-war days, a major part of both export and import ofJapan had been carried on with Asian countries. The ratio of thearnount of trade with Asia to the total trade had been over 50%.
The geographical distribution of the foreign trade of Japan bycontinents, in the pre-war years, is shown in the following table.
Table 1. Geographical Distribution of Japan'sForeign Trade in the Pre-war yearg.
Export

1913

1918

1928

1936

Total(million

354.0

1,114.0

1,116.0

1,032.1

Asia

50.2%

52.4%

52.5%

62.9%

Europe

20.5

13.8

6.7

8.6

NorthAmerica
SouthAmerica

26.5

25.9

35.8

18.3

O.2

1.7

O.9

1.9

Africa

O.3

2.2

i.si

5.6

Australiaand
Oceania

2.1

3.8

2.2

2.7

Import

1913

1918

1928

1936

Tota!(million

392.6

986.9

1,276.3

1,042.8

Asia

52.1%

54.4%

52.8%

52.6%

Europe

27.7

4.3

14.6

9.2

NorthAmerica

15.6

32.0

24.2

26.2

SouthArnerica

O.3

1.1

O.4

3.1

Africa

O.9

2.0

1.2

3.0

Australiaand

2.8

3.0

5.0

5.9

dollars)

dollars)

Oceaniass

FUKUO KAWATA
Note : Dollar values are converted from the original Japanese statistics. The conversion rates are \100=$49.4 in 1913, $51.36 in 1918, $46.5

in 1928, $29 in 1936. By pre-war years, we mean years preceding theSecond World War.

This pattern of trade has undergone considerable changes after
the Second World War. The distribution of trade by continents inthe post-war years is as follows:
Table 2. The Geographieal Distribution of Japan'sForeign Trade in the Post-war years. (million dolZars)
Sept.1945-

1952

Jan.-Mar.

1947

1948

1949

1950

103.3

173.5

258.2

509.7

820.0 1,354.5 1,272.9

ASia

23.6%

66.0% 53.5% 52.5%I46.3%1

EuropeN.Arnerica

1.0

14.0

9.3

14.0

11.7

10.7

14.0

14.5

75.0

12.0

27.9

17.4

25.6

15.7

20.6

24.7

S.America

o

O.1

O.5

O.6

3.8

5.9

2.9

1.8

Africa

o

5.0

7.7

11.4

8.9

8.3

7.4

9.9

Australiaand
Oceania

O.4

2.9

1.1

4.1

3.7

7.9

3.5

1.5

1947

1948

1949

1950

1951

1952

305.6

526.1

684.2

904.8

-974.3 1,995.0 2,028.1

Asia

2.4%
O.1

6.2% 14.4% 18.6% 32.e% 28.8% 31.2%
6.9
4.1
1.8
3.4
7.7
Zl

33.2%

EuropeN.Arnerica
S.America

97.5

91.9

44.5

o

AfricaoAustraliaand
OceaniaoExportTotal(million
dollars)

ImportTotal(rnillion
dollars)

Dec.1946

Sept.1945-

Dec.1946

1951

1953
275.5

51.5% 51.6%

47.6%

Jan.-Mar.

547.5

5.7

76.0

65.0

o

2,O

O.7

4.0

5.5

2,1

3.7

o

2.8

4.8

2.7

4.3

2.6

2.2

o

1.4

3.8

8.6

7.5

7.6

10.7

48.6

46.2

49.6

1953

Immediately after the war, Japan's trade was almost entirely
carried on with North America. In the period between September
1945 and December 1946, exports and imports to and from North
America took up 759o and 97.59o respectively. In 1947 and later
years, the percentages of trade with North America declined, as
the trade with Asia has gradually recovered. The expart trade with

jAPAN'STRADEvVITHsoU'rHANDSouT}t-EASTASIANcoUNTRrEs 39
Asia has reached the pre-war percentages, while the import tradewith Asian countries has been slow in recovery, and has not yet
reached the pre-war ratios.

Although the export to Asia has come up to the pre-war
percentages, yet the regional Distribution of Asian trade has completely changed after the War, because of the political changes in

China and the seperation of Korea and Formosa from Japan.

The trade with Asian countries in pre-war years may be
divided into three parts, that is, trade with (1) Korea and Formosa,(2) Chinese mailand, and (3) South and South East Asia.
The amounts of trade with these three regions are as follows:
Table 3. The Regional Distribution of Japan's Foreign Trade with
Asia in the Pre•war years (in million dollars)
Export

1913

1918

1928

1936

Total

354.0(100.0) 1,114.0(100.0)

1,116.0(100.0)

1,032.1(100.0)

Asia

177.6(50.2)

581.6(52.4)

587.3(52.6)

648.7(62.9)

Colonies41.5(11.7)

10Ll(9.1)

199.0(19.8)

251.2(24.3)

20.4(5.7)

64.9(5.8)

13Z5(13.3)

187.9(18.2)

21.1(6.0)

36.2(3.3)

61.5(5.5)

63.3(6.1)

China(mainland)

91.1(25.7)

244.2(22.0)

224.7(20.1)

190.7(18.4)

South-eastAsia

Southand43.2(12.2)

215.5(19.3)

156.8(14.0)

180.4(17.4)

Import

1913

1918

1928

1936

(KoreaFormosa

Total
Asia

392.6(100.0)

986.9(100.0)

1,276.3(100.0)

1,042.8(100.0)

204.3(52.1)

537.3(54.4)

675.0(52.8)

548.8(52.6)

Colonies

32,3(8.2)

119.8(12.1)

255.0(20.0)

241.3(23.1)
150.2(14.4)(KoreaFormosa12.3(3.1)

65.6(6.6)

155.2(12.2)

20.0(5.1)

54.2(5.5)

99.7(7.8)

9Ll(8.7)

China(mainland)

45.4(11.6)

196.3(20.0)

178.9(14.0)

114.3(11.0)

Southand

122.2(31.1)

218.6(22.1)

228.2(18.0)

189.1(18.1)

South-eastAsia

As to the export trade of Japan, Chinese mainland had been thelargest market in 1913, 1918 and 1928, but in 19ea, the Colonies cameup to the top, exceeding China. South and South-east Asia as a

40 FUKUO KAWATA
market of Japan's products had been second in importance in 1913
and 1918, but in 1928 it fell to the third and remained at that positionin 1936.

Regarding the import trade of Japan, South and South-east Asia
ranked first as a source of supply in 1913 and 1918, but it came
down to the second position in 1928, remaining there in 1936. The
Colonies, which had been third in 1913 and in 1918, became the1argest supplier in 1928 and 19se, surpassing China and South andSouth-east Asia.
After the war, the trade. with Korea and Formosa, and Chinese
mailand declined to negligible amounts, while the trade with Southand South-east Asia increased both in percentage and in value.
Table 4. The Regional Distribution of Japan's Foreign Tradewith Asia in the Post-war yearB.
1953(Jan.-Mar.)

Export

1949

1950

1951

1952

Total(rnUlion

509.7(100)820.0(100)

1,354.5(100)

1,272.9(100)275.5(100)dollars)267.3(52.5)

379.9(46.3)

697.9(51.5)

656.2(51.6)

131.0(47.6)

Korea

16.0(3.2)

18.1(2.2)

14.8(1,1)

40.8(3.2)

20.7(7.5)

Forrnosa
China(mainland)

8.4(1.6)

38.0(4.6)

50.6(3.7)

60.7(4.8)

12.0(4.3)

3.1(O.6)

19.6(2,4)

5.8(O.4)

O.6(-)

O.2(-)

158.4(31.0)

280.0(34.3)

554.4(41.0)

461.8(36.2)

74.6(27.0)

1949

1950

1951

1952

904.8(100)974.3(100)

1,995.0(100)2,028.1(100)547.5(100)168.2(18.6)

310.9(32.0)

576.4(28,8)632.4(31.2)

181.4(33.2)

3.6(O.4)

16.1(1.7)

7.1(O.3)

20.2(1.0)

1.7(O.3)

23.2(2.5)

37.9(4.0)

53.0(2.6)

63.8(3.1)

16.5(3.0)

Asia

S.E.Asla'

ImportTotal (million

dollars)
Asia

Korea
Formosa

1953(Jan.-Mar.)h-China(mainland)

22.0(2.4)

39.5(4.1)

20.8(1.0)

14.9(O.7)

5.5(1.0)

S. E. Asia

109.9(12.2)

199.6(20.5)

423.0(20.3)

418.3(20.6)

125.5(22.7)

Althoughthe post-war export

Asia exceeds the pre-war level, theto South andSouth-east

high percentages in

1950, 1951

ratio

JAPAN'STRADEWITHSOUTHANDSOUTH-EASTASIANcoUNTRllSS 41
and 1952 were due to the boom in this area caused by the Koreanwar. In 1953, the export ratio declined below the pre-Korean war
level, as the Korean boom subsided, while the import ratio has
continued to rise, reaching the post-war peak.

The balances of trade with main regions of Asia in the pre-war
years are as follows :Table 5. Balances of trade with main regiorts of Asia
in the Pre-war years. (million dollars)
1913

Colonies{KoreaFormosaChina(mainland)S.E.Asia

1936

1928

1918

B

E

I

B

41.5

32.3

+9.2 101.1 119.8 -18.7 199.0 255.0 -56.0 251.2 241.3

20.4 12.3
21.1 20.0
91.1

+8.1
+1.1

E
64.9
36.2

r

B

E

I

E

I

B

+9.
65.6 -O.7 137.5 155.0 -- 17.5 187.9 150.2 +37.7
54.2 -18.7 6L5 100.0 -38.5 63.3 91.1 -27.

45.4 +45.7 244.2 196.3 +4Z9224.7 178.9 +45.8 190.7 114,3 +76.4

43.0 122.2 -79.2 215.5 218.6-3.1 156.8 228.2 -- 71.4 180,4 189.1--(Note) E== Export, I=Import, B= Balance

In the pre-war period, trade balances had been favourable with
China, but unfavourable with South and South-east Asia.
The balances with Korea were favourable in 1913 and 1936, but

unfavourable in 1918 and 1928, whereas those with Formosa had
been unfavourable except in 1913.
In the post-war years, trade balances have turned favourablewith South and South-east Asia (except in the first quarter of 1953),

and unfavourable with China.
Balances of trade have been positive with Korea, while thosewith Formosa negative (except in 1950).
The balances of trade in the post-war years are shown in thefollowing table.

8.

42

FUKVO ICAWATA
Table 6. Balances of trade with main regions of Asia
in the Post•war years. (million dollars)
1949

E

I

B

E

1953 (Jan..Mar.)

1952

195i

1950-

B

l

E

B

r

2
7.1 +7• 7 40. 8 20.+20.6
161& +IZ4
Fermosa
8,4 232-l4,8 38.0 37• +O.1 50,6 53O -2. 4 60. 7 es,8 "alÅëhina(maSnland) 3.1 22•O-18.9 19, 6 39. 5 -19,9 5.8
920. 8 -15.0 O.6 14.-14,3
S, E, Asia
158• 4 1os• 9 +48. 5 280, O 199• + so. 4 555. 4 42& O +131.4 461t8 418.
3
+43.5

Kotea

16,O

18.1

+2. 0 14. 8

B

E

I

20.7

O.2

1-7 +19.
l6. 5
r4•
5.5 -5.

74, 6

125.5 -50.

12. 0

The percentage distribution of trade with South and South-east
Asia in pre-war years are shown in the table below.
Table 7. The Percentage Distribution of Japan'g Trade with
South and South.east Asia in the Pre.war years.
ExportTotal

toS.E.Asia
ofwhichtoIndia,,Ceylon,,Malaya,,Singapore,,BritishBorneo.HongKong
Sub-Total

1913

1918

1928

1936

100.0%

100.0%

100.0%

12.1

19.3

14.4

10Q.O%
IZ5

4.2

9.3

6.1

7.3

w-.

e

-

o1.6

1.4

1.9

O.9

-4.7

-2.9

-2.3

O.2

10.3

14.1

9.3

11.1
1.5

O.4

l.6

,,Philippines

O.9

1.1

1.2

,,Thailand,,Indochina

O.1

O.3

O.2

1.2

O.1

O.5

O.2

O.1

,,Indonesia

O.7

3.3

3.1

3.6

1913

1918

1928

1936

Total

100.0%

100.0%

100.0%

100.0%

fromS.E.Asia

31.1

21.1

17.9

18.1

21.8

14.0

10.4

10.3

v

-

w

O.1

O.7

L5

1.3

ImportofwhichfromIndia,,Ceylon,,Malaya,,Singapore,,BritishBorneo.HongKong

vO.2

H
O.04

1.1
1.1

-O.4

O.4
O.1

'

43
JAPAN'S TRADE WITH soUTH AND SOUTH-EAST ASIAN COUNTRIES
Sub-Total

22.7

15.5

12.1

,,Philippines'

1.0

O.9

O.6

1.0

,,Thailand

O.7

O.3

O.7

OO.2

O.3

2.9

Q.7

O.6

O.5

2.5

4.1

3.2

,,Indochina,,Indonesia

13.1

Note: Sub-total =British Empire

ln the pre-war years, India was the largest market (except in1913), and also the largest sources of supply for Japan.

The ratio of export to India to the total exports increased
during the First World War, and remained rather stationary in theinter-war period, while the ratio of impart from India to the total
imports was declining gradually.

The ratio of export to Hong Kong has also been diminishingsince 1913.

The ratio of export to and that of import from Indonesia
increased considerably during the First World War, and this highratio was maintained in the inter-war period.
In the post-war years, Pakistan, (except in the first quarter of
1953), and Indonesia have become the largest markets of Japan's

products in the South and South-east Asia, while Thailand andPakistan have grown the largest sources of supply in the region.
The following table shows the percentage distribution of Japan's
trade in the post-war period with South and South-east Asia.
Table 8. The Percentage Distribution of Japan's Foreign Trade with
South and South-east Asia in the Post-war years.
ExportTotal

toS.E.Asia
ofwhichto1.India.2.Pakistan.3.Burma.4.deylon.5.Malaya

1949

1950

1951

1952

1953
(Jan.-Mar.)

100.0

100.0

100.0

100.0

100.0

31.0

34.3

41.0

36.2

27,O

3.7

2.5

3.8

2.9

4.6

3.2

6.8

8.6

9.2

1.0

O.9

2.0

1.4

1.6

2.1

O.8

O.9

1.3

1,3

1.0

o.o

O.5

O.9

O.8

O.7

"

KAVVATA
FUKUO.6.Singapore

2.7.7.BritishBorneo

o.o.8.HongKong

O.8

6.5

(1)-(8)Sub-total

12.1.9.Philippines.10.Thailand.11.Indochina.12.Indonesia(9)-(12)Sub-total

Import
Total

fromS.E.Asia
ofwhichfrom1.India.2.Pakistan.3.Burma.4.deylon.5.Malaya.6.Singapore

4.0

2.5

46

-

6.3

p

4.6

20.8

24.8

26.1

16.6

4.1

2.2

2.7

1.4

2.1

4.4

5.2

3.3

2.9

4.4

o.o

O.3

O.7

O.6

O.6

5.5

5.7

9.5

4.7

4.1

14.0

13.4

16.2

9.6

11.2

1949

1950

1951

1952

1953
(Jan.-Mar.)

100.0

100.0

100.0

100.0

1oo.O

12.1

20.5

20.3

20.6

21.7

1.5

1.8

2.6

3.6

3.5

1.8

4.1

4.6

4.1

6.7

O.7

1.8

1.4

1.5

2.0

-

O,1

O.1

O.1

4.1

2,9

2.7

1.8'

O.3

O.5

-

O,1

2.3

-

-o.o

-

O.2

O.4

O.4

O.8

O.9

'

O.3

O.3

O.3

(1)-(8)Sub-total

6.4

12.2

12.5

13.4

15.8

.9.Philippines

1.5

2.3

2.5

2.5

2.0

.10.Thailand.11.Indochina.12.rndonesia

2.0

4.5

2.5

3.1

1.6

O.3

O.1

O.1

O.2

O.3

1.7

1.4

2.7

1.4

2.0

(9)-(12)Sub-total

5.5

6,O

7.8

7.2

5.9

.7.BritishBorneo.8.HongKong

Note:

4.2

1.7

Sub-total
Sub-total(1)-(8);Sterling area(9)-(12)==Open accoontarea

The balances of trade with South and South-east Asia in the
pre-war years were generally unfavourable to Japan, but in the
post-war period they turned favourable, except in the first quarterof 1953.

Trade balances with individual South and South-east Asian
countries in the pre-war years are shown in the following table.

45
JAPAN'S TRADE WITH SOUTH AND SOUTH-EAST ASIAN coUNTRIES
Table 9. Balances of Trade with South andSouth-east ABia in the Pre-war years. (million dollars)
1918

1913

Country

E

B

E r

B

I

1936

1928

B

E

E

B

I

-33.7 67.9132.4 -64.5 75.1 107.9 -32.8
4.0 O.8 +3.2
F..
O,7 11.3 -10.6
2.6 +2.5 21.7 15.0 +6.7 9.5 16.9
5.1
-7.4
17.0 11.9+5.1
O.6 +10.0 32.7 O,4 +32.3 26.1 O.5 +25.6 16.9 1.0 +15.
16.6
O.2 4.5 -4.
3.1
3.8 -- O.7 12.0 8,9+3,1 13.5 7.6 -5.9 15.0 10.5 +4.
O.5 2.8 -2.3 3.1 2,9+O.2 2.7 8.9-6.2 12.5 2.5 +10.0
O.5 12.2 -11.7 5.1 28,5 -23.4 1.9 9,4-7.5 1.4 5.8 -4.
2.5 18.4 -15.9 36.8 25.1 +13.7 34.1 52.5 -18.4 37.6 32.9 +4.7
43.0 122.2 -79.2 215.5 218.6 -3.1 156.8228.2 -61.4 180.4 189.1 -8.
14.8 85.6 -- 70.8 104.0 137,7Indiadeylon-'

MalayaSingapore

Hong Kong
British Borneo

P 'Philippines

ThailandIndochina
Indonesia

Total

(

P

We learn from the above table that trade balances with India
and Indochina were unfavourable throughout the period. This isbecause Japan imported a great dea1 of raw cotton from India andrice from Indochina.

Table 10. Balances of Trade with South andSouth.east Asia in tlte Post.war years.
Post`warYears

i950

1949

T953(Jan..Mar,)

1952

1951

(Milllondallars)

E

rndia

1&7 13.6 +5.1 20. 17•8 +2.6 51.7 52,4 -O•7 36,7 7&O-363
16,5 16.1 +O.4 55.6 39.0 +16,6 117.0 102.5 +14.5 11Z8 82.4 +ss4
6.1 -1•4 16
17.7 -1•4 1&1 30.6 -12.5 21.2 29•
4.7-g6.Paklstan

BurrnaCeylen

MalayaSingapore

BritishBornco

HopgKong
Sub-tetal

Philippines

Thailandrndochina
Indoneshia
Tetal(Note)B

I

E+37 7,1I

B

E+69 17.4

l

B

E

I

B

E

I

B

9.1 19.7 -la&o 39.5 -ss•
5.8 11.5 -5.

+15.9 17.3 2• +15.0 2•9 a +2.
O•9 21,3 -12.4
4.4 39•l -34•7 11.6 5&7 -4•71 11,6 54. -as7 2•O 10,1 -&138& +4+138 137 O.3 +134 566 4.1 +52.5 51,5 6.7 +44,8 7•
O.6 -O•6 O-2 39 -&7 a2 9•O -gs e•7 17•2 -16S O•1 5.6 -5.
2.1 +10•7
27.3 O.6 +267 53.
O.6 +52.7 61.6 5.9 +55.7 80.7 6. +73•9 12.
862 52•7 +ss5 i70.9 159.I +11.8 •2 264•7 +69,5 7•5 272. +as,o 42.7 91,9 -49•
-5.
6.1 11.
21,O 1&6 -7•4 1&3 22.5 -4.2 36.9 49,6 -12.7 19.6 51.2 -31.6
22.4 1&8 +&6 42.6 435 -O•9 45.2 51•O -5,8 36•4 62.5 -261 12.7 9.0 +37
1•7 +O•1
O.6 32 -2•6
2•1 1.6 +O•5 9•7 Z9 +68 gs 4.7 +38 1.8
11.5 -a2g1 15•7 +2•4 46.3 134 +32.9 12&4 54.8 +7S6 59.8 27.5 +32,3 1:.
15&3110•2 +48.1 2eo.2 1op.6 +so.6 54.4 423 +131.4 461.8 41& +rs,5 74.4 12S.5 -51.1
4•3

-

O,6

O.2

-

E=Export, I= Import, B=Balance

1,5ca 1ruKUO KAWATA
Throughout the period (1949-Jan.-Mar. 1953), the balances oftrade were always favourable with Ceylon, Singapore and Hong
Kong, while they were unfavourable with Burma, Malaya, British
Borneo, and the Philippines.

Trade balances with India were favourable in 1949 and 1950,
but,thereafter they turned unfavourable. Balances with Indonesia
and Pakistan, which had been positive ever since 1949, turned
negative for the first time in the first quarter of 1953.

Japan's trade with the sterling countries in this region had
enjoyed favourable balances between 1949 and 1952, but in the firstquarter of 1953, it recorded adverse balances.

1
Principal commodities exported to South and South-east Asia
are cotton yarns, cotton fabrics, cement, potteries, iron and steel(plates, tubes, wires, pipes, etc.), spinning & weaving machinery,

and the like. Let us examine the changes which exports of thesecommodities have undergone since 1913.

(1) Cotton yarns
In the pre-war period, the percentages of export of cotton yarn$
to South and South-east Asia had been rising, that ,is, 10% in 1913,
38% in 1918, 43% in 1928, and 640/o in 1936 (by value).
In the post-war years, the ratio came up to 979o in 1949, butlater it declined slightly, showing 91% in 1950, 86% in 1951, and959o in 1952.

In the early pre-war years, the principal market of cotton yarns

was China, but later the importance of South and South-east Asia
became so great that the majority of cotton yarns were sold in theSouth and South-east Asia.

47
JAPAN'STRADE WITH SOUTH AND SOUTH-ESAT ASIAN ooUNTRIES
Table 11. Quantity and Value of the Export of Cotton yarns.
(1) Cotton yarns'

Quantity(thousand metric tons)

Pre-warPeriod

1913

ExportTotal(A)
S.E.Asia(B)

%(ll)

Value
(milliondollars)

1918

1928

1936

1918

1928

1936

1913

84.0

75.0

17.6

24,6

36.1

83.0

15.9

12.6

7.3

26.6

6.5

12.8

3.6

31.3

6.9

8.1

9% 35% 37% 50% 10% 38% 43% 64%

HongKong

6.1

11.2

2.9

1.2

2.8

12.1

2.0

O.5

rndia

O.6

14.3

3.0

7,5

O.5

18.0

4.3

5.2

Philippines

O.6

1.0

-

-

O.3

1.2

O.2

O.4

2,8
4.9

29.5

-

4.1

-

2.1

3.3

1.7

Indonesia
China
Korea
--.t-tt.t-tt7..t7T.--

74.3

-

O.5

44.5

4.4

2.4

15

4.7

-

-tt---tmu.

..--.
rr..
1951
1950

Post-warPeriod

1949

ExportTotal(A)
S.E.Asia(B)

10.2

11.1

9.3

10.3

%(x)

Burma
IPakistanlrndia!Indonesia

'

O.8

4.2
tttm--t"t

47.2
1.6
L..Lt..-L.t

tll.t-t"--t-.tttt-

t-tuLt

1952

1949

1950

1951

12.7

13.4

16.3

17.6

32.6

28.4

10.9

12.5

15.9

16.1

27.9

26.9

1952

91% 93% 86% 93% 97% 91% 86% 95%
3.1

1.6

1.8

1,5

4.5

2.3

5.1

3.3

2.6

6.8

7.6

9.5

3.8

10.1

18.5

19.9

r

-

'

7.1

1.1

O.9

-

3.2

-

2.0

3.3

-

2.1

O.2

3.5

(2) Cotton Fabrics
Cotton fabrics were mainly exported to China in the early prewar days, but the weight of South and South-east Asian market had
been increasing, especially after the First VSTorld War. After theSecond World War, the greater part of the cotton tissues for export
has been absorbed in the South and South-east Asian market.

The main importing countries were India, Indonesia and Hong
Kong in the pre-war years, while in the post-war period, Pakistan
stands at the top, taking place of India. India ceased to be a major

market of cotton tissues in the post-war years, because her cotton

industry has made remarkable progress during the war, and she has
now become one of the largest exporters of cotton tissues.

-

os

FUIKUO KAWATA
Table 12. Quantity and Value of the Export of Cotton Fabrics.

(2)

Cotton Fabrics(million

Value

Quantitysquare yards)(rnillion'dollars)

Pre-warPeriod

1913

1918

1928

1936

1913

1918

1928

1936

ExportTotal(A)
S.E.Asia(B)

-

-

1,588

2,873

21.3

135.6

183.6

149.3

651

1,080

1.6

43.7

64.3

50.9

%(k)

India

rndonesia

HongKong
China

41% 38%

8% 32% 35% 34%

358

480

O.5

28.4

32.6

21.0

172

352

O,1

8.9

18.3

16.0

68

84

O.5

1.8

8.1

4.3

585

388

13.9

56.0

80.6

24.2

- 1950 1951

1952

1949

1950

1951

1952

----

T

-

Post-warPeriod

1949

ExportTotal(A)
S.E.Asia(B)

740

1,103

1,094

762

164.6

207.2

317.5

180.3

312

522

855

466

66.5

107.2

182.8

99.2

%(ll)

42.e/.

47% 80% 6]%

40% 52% 58% 55%

Pakistanrndonesia

84

224

208

184

9.2

40.3

63.3

34.7

93

165

440

129

21.3

35.0

69.7

27.5

HongKong

11

30

35

57

2.8

6.4

13.3

13.6

(3) Rayon fabrics
It is only in 193ors that rayon fabrics have become one of themost important export products of Japan.

In 1936, about one half of the quantity of the exported rayon
fabrics was $old in the South and South-east Asian markets, ofwhich India was the 1argest.
Besides, China and Korea were also big markets for Japaneserayon fabrics.

In the post-war years, India has ceased to buy Japanese rayon
fabrics in such a large quantity as before, and China and Korea
have also been lost as large markets. To-day, rayon fabrics areexported mainly to Hong Kong, Singapore and Ceylon. The importance of South and South-east Asian markets has been risingyear after year since 1950.

JAPArwS TRADE WITH SOUTH AND soUTH-EAST ASrAN coUNTRIES 49
When we compare the quantity of rayon fabrics exported before
and after the Second World War, we find the quantity exported •tothis area in post-war years is about a half of the amount exported
in 1936.

But the percentage of exports to this region in the post-years,
however, exceeds the level in 1936.
Table 13. Quantity and Varue of the Export of Rayon Fabries.
(3) Rayon (inchiding mixed tissues)(million

ExportTotal(A)
S.E.Asia(B)%(ft)

Quantitysquare yards)

Value(milliondollars)

1936

1950

1951

1952

1936

1950

1951

1952

527.5

152.2

232.9

207.5

51.7

38.3

66.6

43.9

250.0

63.9

136.8

133.3

17.9

17.8

39.0

26.8

47% 42% 59% 64% 35% 46% 59% 61%

HongKong

27.0

39.8

31,2

29.4

2.2

10.8

10.2

5.6

Singapore
deylon

26.2

9.0

48.4

43.9

O.8

2.0

12.7

8.4

O.7

1.7

20.4

31.9

O.9

O.5

5.8

6.6

India

92.0

Indonesia

51.5

03

10.9

-

7.6

12.5

3.2

35.4

-

p
'

'
-

-

Philippines

China
Korea

60.5
94.3

-

--..

3.4
2.5
6.6
7.5

-.--

'
-

'
'
-

(4) Cement
In 1913, the chief markets of cement were Korea and Formosa,but the importance of South and South-east Asian market suddenly
increased during the First World War, taking up 609o of the total
cement export. This ratio, however, declined in 1936, as the sharesof Korea and Formosa increased.
In the post-war years, the share of the South and South-east
Asian market has risen to more than 40% (except in 1951).

The principal markets in the region are Hong Kong, Pakistan
and Malaya.

"

3.0

'
P

se

FUKUO
KAWATA
Table 14. Quantity .and Value of Export of Cement.

(4) Cement

Value

Quantity(million dollars)(thousand metric tons)
1913

1918

1928

1,140

1.37

5.17

254

3.70
2.29

5.44

O.08

2.87

O.84

Pre-war Period

1913

1918

1928

1936

Export Total (A)

112

156

•449

S. E. Asia (B)

7.5

117

270

(
Philippines

7% 75% 60% 22%
102
65
49
6
14
46
2

% (R)

Indonesia

1.10

O.50

23
25

O.24

0.26
O.92
O.20
O.75

1950

1951

1952

1949

449

485

834

798

352

236

432

410

Post-war Period

1949

Export Total (A)S. E. Asia (B)Hong Kong. .1;30.

O.27

19

g/o (k)6% 62% 53% 16%

356
113
133

50
7
37

Korea
Formosa
China

23
61

130

1936

O.06

O.17

1.90

2.10

O.33

O.70

O.26

O.60

1950

1951

1952

7.09

6.11

14.97

17.75

5.63

2.91

4.70

7.63

O.78

78% 49% 52% 51% 79% 48% 31% 43%
84

Pakistan

154

93

124

14

94

118

Malaya4

12Philippines

126

40

India

115

Korea

85

1.32

1.53

2.77

1.82

2.64

O.16

46
11

1.90

O.16

1.96

O.51

1.07
O.28

1.91

70

1.30

O.90

(5) Potteries
Potteries exported to the South and South-east Asian markets
were only 150/o in 1913, but this percentage was doubled during theFirst World War, rising to 339o in 1918. This ratio, however,declined to 18% in 1936.

In the post-war years, the ratio tended to increase, except
in 1950.

The main markets in the pre-war period were India, Indonesia,
China and Korea ; in the post•war years, Hong Kong and Indonesia.

51JAPAN'S TRADE WITH soUTH AND soUTH-EAST ASIAN coUNTRrES
Table 15. Value of Export of Potderies.

(5) Potteries
Value (million

dollars)

Pre-warPeriod

1913

1918

1928

1936

ExportTotal(A)
S.E.Asia(B)

3.68

10.51

18.00

14.61

O.57

3,60

4.58

2.66

%(ft)

15% 34% 25% 18%
O.16

O.93

1.14

O.97

O.06

1.29

2.24

O.69

Korea

O.22

O.44

1.35

1.64

Formosa

O.13

O.21

O.55

O.45

O.29

1.65

1.65

1.18

1950

1951

- 1952

20.48

33.29

29.89

3.57

9.95

11.39

I1Indonesia
India

China
.+.t."L-LTrrt.+.tr..-..7-

Post-warPeriod

ExportTotal(A)
S.E.Asia(B)

%(x)

Lrv

'

17% 30% 38%

HongKong

O.63

O.41

5.09

Indonesia

O.77

O.59

3.35

-

-

-

India

(6) Iron
Iron (sheets, plates, wires, tubes, pipes, etc.) had mainly been

exported to Korea and Formosa before the First World War.
Although during the First World War, a substantial quantity ofiron was exported to India, this may be regarded as an exceptionalcase. In 1936, the ratio of export (by quantity) to South and Southeast Asia was 16%, the chief markets in the region being India,
Indonesia and Thailand.

In the post-war years, the ratio rose to 32%in 1952, which is
two-fold of the pre-war figure. The quantity exported to thisregion reached 510 thousand tons in 1952, as against 138 thousand
tons in 1936. The principal markets are Pakistan, Thailand andthe Philippines.

52

FUKUO KAWATA
Table 16. Quantity and Value of the Export of Iron.

(6) Iron
Value

Quautity(thousaud metric tons)(milliondollars)

Pre-warPeriod

1913

1918

1928

!936

1913

1918

1928

1936

ExportTotal(A)
S.E.Asia(B)

15

67

143

873

O.89

19.22

12.84

39.54

-

19

12

138

-

6.05

O.84

6.61

31%

7% 17%

O.08

1.39

12.35

%(k)

ThailandIndia

Indonesia

China

Korea
Formosa

28%

'

14

8% 16%
O.3

34
26

36

ny

1.21

288

O.03

7.87

281

O,07

1.71

6.96

12.89

O.79

2.54

2.96

4.74

1952

pm

3

A2

24

-17

12

87

12

4.09

1.30
1.58

1.64

8

35

104

Post-warPeriod

1950

1951

1952

1950

1951

ExportTotal(A)
S.E.Asia(B)

666

974

1,606

74.60

205.5

260.6

107

228

510

16.28

53.45

86.36

%(ft)

16% 23% 32%

22% 26% 33%

PakistanThailand

29

25.70

60

-

9.52

35

3.83

7.32

11.50

Philippines

34

53

52

5.40

14.66

9.92

44

179

(7) Textile Machinery
During the First World War, the export of spinning and weaving
machinery had increased considerably, especially to India, but withthe termination of the War, European industrial nations, regained
the market which had been lost during the War. Japan's export ofthe spinning and weaving machinery to India dropped sharpiy after

the First World War. In 1930's, the amount of export had considerably risen, although the percentage declined owing to theincrease of export to China.

In thq post-war years, both the amount and the ratio of export
to South and South-east Asia experienced a remarkable rise, owing
to the growth of cotton industry in this area.

ss
jAPAN'S TRADE WITH soUTH AND SOUTH-EAST ASIAN coVNTRIESThe chief markets are Pakistan, India and Indonesia.
Table 17. Value of Export of Textile Machinery.

(7) Textile Machinery
Value (million dollars)
Pre-twarPeriod

1913

ExportTotal(A)
S.E.Asia(B)

O.17

1.85

1.43

5.02

O.05

1.11

O.25

O.60

%(ft)

1918

1928

1936

29% 60% 17% 12%

rndia(HongKong

O.04

1.10

China

O.22

-

O.72

1.25

3.54

Korea

-

-

-

O.63

-

O.18

-

O.48

"

Post-war Period

1950 1951 1952

Export Total (A)S. E. Asia (B)9.95 14.92
6.90 10.64

% (2)

{

India
PakistanIndonesia

16.79
12.54

69% 71% 74%
3.16 2.94
2.32 6.15
O.58 O.37

2.20
8.14

1.15

m
The principal commoditis, imported from South and South-east
Asia, are rice, cotton, raw rubber, iron ores, and other special
products in the region, such as tin, manila hemp, copra, teak, etc.
Sugar is now imported chiefly from Cuba and Formosa, but in the
pre-war years a large quantity of sugar was imported from thisregion. Now let us examine some of the important commodities.

(1) Rice
Japan imported rice in large quantities from Indochina, Thailand

and Burma (India) in the early pre-war years. But as the riceproduction in Korea and Formosa developed, her import of ricefrom South and South-east Asia gradually decreased. The percentage (by quantity) diminished to 30/a in 1936, thoug'n it was

54 FUKUO KAWATA
over 50% in 1913.

In the post-war years, Japan has again come to depend upon
the rice in South and South-east Asia. The percentage (by quantity) of rice import from this region reached 99e/6 in 1949, but
thence the ratio diminished year after year down to 42% in 1952.
Table 18• Quantity and Value of the Irnport of Rice.

(1) Rice
Quantity(thousand metrictons)

Value(milliondollars)

1913

1918

1928

1936

Pre-warPeriod

1913

1918

1928

1936

rmportTotal(A' )fromS.E.Asia(B)

933

1,250

1,617

2,O06

37.33

113.59117.85

95.32

536

687

198

55

23.25

45.37

13.90

1.47

%(x)

57% 55% J2%

HongKong

-

O.05

O.12

O.5

9.88

16.98

91

2

10.00

151

53

2.57

1,O06

1,263

153

328

1950

1951

2

2

India

210

243

Indochina
Thailand

250

391

77

50

Korea

228

399

Formosa159
1949

Post-warPeriod

3% 62% 40% 12% 1.5%

-16

0.95

-

O.02

-

25.68

5.40

O.08

2.54

7.55

1.40

5.63

54.72

85.29

72.32

687

7.75

12.75

24.79

36.01

1952

1949

1950

1951

1952

rmportTotal(A)

130

672

779

979

21.06

84.49

120.27184.35

fromS.E.Asia(B)

129

563

416

443

20.62

70.44

61.62

77.33

%(x)

ItThailand
Burma

U.S.A.
Italy

Egypt

99% 84% 53% 45% 99% 83% 51% 42%
40

145

162

126

6.08

17.72

25.40

22.17

87

418

254

317

14.54

52.99

36.22

55.14

2

36

40

234

O.4

4.28

7.45

55.19

-24

8

108

"

1.45

19.95

3.44

26.55

-

1.11

11.74

12.97

U. S. A.

Italy,

pt-

Brazilpt

Formosa-

Beside this region, rice is

-

176
6

73

61

nt

'

now imported from

Egypt, Brazil and Formosa.

(2) Sugar
In the early pre-war days,

Japan imported a large

quantity of

JAPAN'STRADEWITHSOUTH.ANDsoUTH-EASTASIANcoUNTRIES 55
sugar from Indonesia and the Philippines, especially from Indonesia.

In 1913, 70o/o of imported sugar came from South and South-east

Asia. But later, sugar production in Formosa had made rapid
progress, and with the rise of the sugar import from Formosa, theimport of sugar from Indonesia and the Philippines decreased. The
ratio declined from 38% in 1918 to 11% in 1936,
In the post-war years, sugar was mainly imported from Formosaand Cuba. The amount imported from South and South-east Asia,
that is from the Philippines, has been of negligible size.
Table 19. Quantity ttnd Value of the Import of Sugar.

(2) Sugar
Quantity

Value(thousand metric tous)(million dollars)'

Pre-warPeriod

1913

1918

1928

1936

1913

1918

1928

1936

ImportTotal(A)

387

484

967

,1,072

25.79

45.27

86.66

53.48

fromS.E.Asia(B)

323

223

375

204

18.00

17.16

29.71

5.72

34-ofe

ILO!e

5.74

%(-AB-)

ItPhiiippines
Indonesia

83% 46% 39% 19% 7D% 38%
281

185

374

37

1

62l

35
261

586

tr.+.--u-n.t--T
Post-warPeriod

1949

1950

ImportTotal(A)242

Formosa

fromS.E.Asia(B)%(R)

Philippines

Formosa
Cuba

204

15.99

15.07

29.62

r

1.76

1.88

O.93

856

7.64

28.05

56.45

1951

1952

1949

1950

360

554

793

26.78

46.04

91.99

pt

5

11

pt

O.81

179

+
243

o.]%

l.4%

5

11

183

116

94

293

pt

-tm-..

ri

-

47.41

1952

O.9.e/.

109.92
1.75

1.6%

'
30.96

O.81

1.75

250

p
19.78

32.44

38.36

406

6.98

Zl.79

44.45

49.01

(3) Raw Cotton (ginned)
In the days before the First World War, Japan imported cotton
mainly from India, the U.S.A. and China. The amount of cotton
imported from India took up 609o of the total cotton import in 1913.

But later this percentage tended to decrease, with the rise ofimport from the U.S. A. and in 1936, the share of Indian cotton inss FUKVO KAWArrA
the total imported cotton declined to 44% (by quantity).

After the Second World War, the ratio of import of cotton fromthe South and South-east Asian region declined to 15% in 1949, and
13% in 1950, but thereafter it shows a tendency of gradual increase.

However, the quantity of cotton imported from this area in 1952
was onlyaquarter of that in 1936. The main sources of supply in
the South and South-east Asian region are Pakistan, India and Burma.
Table 20. Quantity and Value of the Import of Cotton (ginned).
(3) Cotton (ginned)

Value

Quantity(million dollars)(thousand metric tons)

Pre-war Period

1913

1918

rmport Total (A)

386

409

from S, E. Asia(B )

244

175

% (x)

1936

1913

1918

1928

1936

570

922

114.7

268.0

257.3

249.7

308

404

71.3

108.4

108.0

91.4

1928

63% 43% 54%

44.e/.

62% 40% 42% 37%

India

240

174

308

404

70.6

107.9

108.0

91.4

U. S. A.

103

151

232

356

31.7

105.3

114.4

108.0

China

32

73

62

28

8.0

45.4

23.0

6.6

Post-war Period

1949

1950

1951

1952

1949

1950

1951

1952

Import Total (A)

186

351

380

427

147.5

271.1

469.2

418.0

from S. E. Asia(B)

27

46

67

100

20.8

38.9

104.4

98.2

23.elel4%14."/e22% 23%

% (x)

{

l5%

13% 18%

Pakistan

16

36

55

63

7.67

29.2

89.9

73.6

India

11

10

8

32

13.1

5.5

9.7

20.4

"

4

5

178

210

Burma
U. S. A.

-

145

282

-

105.2

-.-

4.8

4,1

213.7

164.7

201.3

(4) Crude Rubber
Japan ha$ imported raw rubber almost entirely from Southand South-east Asia.

The quantity of crude rubber imported into Japan in the post-

war years exceeded the pre-war level in 1952. The main sourcesof supply are Indonesia and Malaya (including Singapore).

57
JAPAN'S TRADE WITH SOUTH AND SOUTH-EAST ASIAN coUNTRrES
Table 2L Quantity and Value of the import of Crude Rubber.
(4) Crude Rubber

Value

Quantity(million dollars)(thousand metric tons)
!913

1918

1928

1936

1913

1918

1928

rmpertTotal(A)

1.20

7.36

26.05

63.89

1,70

6.65

12.97

21.17

6.42

12.75

20.46

fromS.E.Asia(B)%(ft)

Malaya

O.91

7,22

25.64

63.13

1.12

75% 98% 98% 99% 65% 99% 98% 97%

Singapore
Indonesia

O.72

India

O.15

- 18.30- 1.80
5.88
O.23

U.S.A.
U.K.

O.06

O.04

O.20

O.06

Brazil

-

-

6.84

16.84
20,76

-

5.94

-

5.62

O.87

9.10

6.86

O.57

6.64

-

O,43

-

O.08

O.23

O.24

3.06

O.13

O.08

O.24

O.10

O.08

O,05

O.04

O.14

O.13

O.40

O.13

O.09

O.02

'

-

-

O.03

1951

1952

19.87

-

-

-

O.56

Post-warPeriod

1949

1950

1951

1952

1949

1950

ImportTotal(A)

40.96

57.72

60.48

6Zll

15.59

40.29

80.15

45.68

fromS.E.Asia(B)

40.92

57.64

60.35

67.04

15.58

40.23

79.98

45.63

%(ft)

Indonesia
I1Malaya

100% IOO% IOO% 100% 100% 100% IOO% 100%
16.46

16.21

2,8.80

23.33

6.39

8.51

40.54

14.54

24.21

40.65

29.60

43.11

9.11

31.20

36.88

30.73

(5) Petroleum
In the pre-war years, about 30%. of petroleum imported into
Japan came from Indonesia and Brltish Borneo. A major part ofJapan's need for pertroleum was, however, supplied by the U. S. A.
In the post-war years, the ratio of dependence upon South andSouth-east Asia for petroleum decreased considerably, but the percentage tends to increase in recent yeacrs. The principal sourcesof supply are the U. S. A. and Arabian countries, the quantity
imported from these sources reaches nearly 90% of the totalmlport.
.

1936

Pre-warPeriod

58

FUKUO KAWATA
Table 22. Quantity and Value of the import of Petroletm•(5)

Petroleum

Value

Quantity(thousandkilolitres)(milliondollars)

1936

1950

1951

1952

1936

1950

1951

1952

ImportTotal(A)

4,650

2,378

4,622

4,810

52.20

41.16

101.32

122.75

fromS.E.Asia(B)

1,315

105

411

461

15.39

1.89'

8.20

10.25

28%

4%

9% IO% 29%

5%

8%

1,O07

93

8%

109

171

12.53

1.74

2.30

4.16

262

243

2.67

O.15

6.14

6.09

40

47

O.10

O.13

1.20

1,746

1,084

33.74

20.30

37.64

2,O13

3,120

'

10.89

44.11

303
73,048-2.20/32.0973.93(6) Iron Ore
In the pre-war period, Japan imported iron ores mainly from
China. It was only in late 1920's that Japan began to rely upon
the ores from• South and South-east Asia. The principal •supplierof iron ores to Japan were Malaya and the Philippines. In 1936,
the ratio of iron ores imported from there countries reached 609/oof the total iron ores imported.

In the post-war years, the ratio of dependence upon the ironores in the South and South-east Asian region maintains the
pre-war level.

The import from China, however, decreased, and has been
replaced by the supply from the U.S.A.
Table 23• Quantity and Value of the Import of Iron Ore•

(6)

Iron Ore

Value

Quantity(thousandmelliontons)(milliondollars)

Pre-warPeriod

1913

1918

1928

1936

1913

1918

ImportTotal(A)

422

694

1,842

4,023

O.95

6.16

--

738

2,287

40%

57.e•e!

fromS.E.Asia(B)g/e(ll)

"-

pt

H

--

1928

1936

8.23

11.83

3.78

7.22

46% 61%

59
JAPAN'S TRADE WITH SOUTH AND SOUTH-EAST ASIAN coUNTRrES
I1Philippines
Malaya

738

1,691

278

359

'
878

570

143

333

225

Post-warPeriod

1949

1950

rmportTotal(A)

1,588

1,435

China
Korea

fromS.E.Asia(B)

%(R)

pt

899

1,192

4.93

3.78

5.25

1,252

O.75

3.72

3.36

243

O.17

1.20

O.69

O.32

1951

1952

1949

1950

1951

1952

3,089

4,768

r

14.11

58.11

92.50

11.24

33,57

48.12

2,023

2,733

57% 83% 65% 57%

Philippines,

345

575

900

1,182

Malaya

485

521

716

821

India

46

36

153

419

PortugueseIndia

5

60

180

251

-

817

1,426

66

65

U.S.A.
China

292
349

194

1.74

80% 58% 52%
5.25

13.09

18.28

4.80

13.06

15.26

O.35

2.86

8.71

O.64

3.37

5.13

-

19.50

33.11

O.78

O.74

2.55

(7) CoalIn the pre-war years, Japan imported coal mainly from China,
but in the post-war period, the U.S.A. has taken-the place ofChina. A greater part of imported coal is coaking coal, which isessential for the iron and steel industry in Japan.

Japan has imported anthracite from Indo-China, and to-day
Japan is importing coking coal in fairly large quantity from India,

instead of China, although a major part of coking coal comes fromthe U. S. A.

The dependence of Japan upon South and South-east Asia forcoal has therefore increased in the post-war years as comparedwith pre-war days, but the quantity imported from this region took
up only 289/o (in case of coaking coal the ratio was 23%) in 1952.
Table 24• Quantity and Value of the lmport of Coal.

(7) Coal
Value

Quantity(milliondollars)(thousandmetrictons)

Pre-warPeriod

1913

1918

1928

1936

1913

1918

1928

1936

ImportTotal(A)

673

858

3,134

4,954

2.17

8.47

18.85

16.92

oo

FUKUO KAWATA
fromS.E,Asia(B)%(ft)

Indochina

17

487

897

O.07

3% 10% l5%

l8%

3% 17% 14% 20%

88

1.42

3.38

2.73

17

88

487

897

O.07

1.42

2.73

3.38

China

555

679

2,295

3,310

1.81

6.62

13.86

11,40

Korea

92

85

275

638

O.17

O.31

1.24

1.81

Post-warPeriod

1949

1950

1951

1952

1949

1950

1951

1952

ImportTotal(A)

1,842

832

1,935

3,355

48,89

83.65

81

129

562

923

"
-

10.31

fromS.E.Asia(B)

1.71

12.18

19.29

l7%

26% 23%

O.96

9.42

16.18

O.75

2.76

•3.11

6.06

O.53

O.75

1.43

34.69

61,39

'

1.00

pt

%(x)

I1Indochina
rndia

China
U.S.A.

Canada4e/.

16% 29% 28%

27

92

436

787

54

37

126

136

-

521

45

40

75

1,264

2,281

46

'

44

9

1,644

v..

"
..H.-

(8) Salt
In the pre-war period, salt had chiefiy been imported from China
and North Africa. The importance of South and South-east Asia asa source of supply had been small. But in the post-war years, salt
import from China has sharply declined because of political reasons.
On the other hand, the import prices of African salt have risen owing
to the high rates of freight. Japan, therefore, has turned to Southand South-east Asia for salt. 1'he import of salt from this region
has been increasing. For example, the quantity imported amounted
to 81,OOO tons in 1950, 92,Ooo tons in 1951, and 391,Ooo tons in 1952.

The percentage of import from this area in the total import ofsalt reached 279'o' in 1952, as against 6% in 1936.
Toble 25. Quantity and Value of the Is"port of Salt.

(8) Salt
Value

Quantity(thousandmetrictons)

IrnportTotal(A)(milliondollars)

1936

1950

1951

1952

1936

1950

1951

1952

1,432

643

1,808

1,470

5.47

7.88

34.16

24.31

61
JAPAN'S TRADE WITH SOUTH AND SOUTH-EAST ASIAN coUNTRIES
fromS.E.Asia(B)

81

92

%(x)

391

6.05

6% 14%
O.38

O.17

21

74

86

O.22

1.02

1.19

-

8

17

O.22

-4

'
-92

26

China

965

74

Formosa

110

156

200

Aden

24

97

258

ItalianEastAfrica

211

9

64

83

lndochina

1.42

250

pt

Indonesia

1.08

10

34

ThailandO.33

5% 27%

6% 13%

India

92

4% 25%
4.04

-

O.13

36

'
O.33

O.48

4

2.36

O.68

O.05

O.04

127

O.32

2.01

2.53

1.72

307

O.10

1.09

4.36

5.15

O.83

-

'

-

O.60

'

m
After the Second World War, Japan's depedence upon the Southand South•east Asian countries for foodstuffs and raw materials haslargely increased. But the amount of foodstuffs and raw materials
which this region can, at present, supply to Japan is very 1imited.

It would, therefore, be favourable both for Japan and for thesecountries if Japan could render services for the exploitation of
resources still latent in these areas. It would, also, be beneficial
both for Japan and for the rice producing nations in this region if

Japan could co-operate with them in raising the productivity by theapplication of Japan's improved technique of rice cultivation.
The yield of rice per hectare in Japan is much larger than in
the South and SouthÅíast Asia, as is shown in the following table.

(Table No. 26)
Table 26. Comparison of Rice Production in Japanand South and South-east Asia
(yield 100kglhectare)
1934-38

1947

1948

1949

Japan

36.3

36,2

38.4

38.8

Burma

14.1

15.0

13.6

12.5

deylonIndochina

9.9

6.5

7.6

7.4

IL6

10.2

10.2

10.2

62

FVUKUO KAWATA
rndia

Reporting Area
Non-reporting Area

13.1

lgig )

11.8

11.7

17.5

Indonesia

Bali & Lombok
Java & Madura
Malaya

22.6

22.6

23.6

15.8

15.7

16.3

16.2

14.6

19.1

Pakistan

14.8

'
13.7

14.7

14.1

Philippines

10.9

'
l;lg

11.5

11.9

Thailand

12.9

IZ2

13.9

Source: FAO, Year-book of Food and Agricultural Statistics, 195e.

In consequence of the development of natural resources andincrease of production of foodstuffs, the national income per capita

in this region, which is now miserably low, would rise, and theinternational trade between Japan and this region might be expanded
by selling raw materials and foodstuffs to Japan and by purchasingnecessary manufactured articles from Japan.
In reality, however there are many obstacles standing in theway of realizing the expansion of trade with Japan, For example,
reparations problems are not yet settled, the sentiments of thepeoples in this area are not so favourable for Japan, the treatiesof trade and navigation have not yet been concluded with them,and the economic connections with their former mother countries
still remain very close and so forth.

Besides, Japan's costs of production of capital goods, which areurgently demanded in this region, are generally higher than thoseof other industrial nations, partly because of the high prices of raw

materials, especially coal and iron, and partly because of the low
eMciency of labour, and the obsolescence of capital equipments.

Therefore, the share of Japan in the trade of the South andSouth-east Asian countries as a whole is not so large, in spiteof the proximity of her geographical situation to these countries.

According to the report published by ECAFE, ECE and FAO, (The
Preliminary Report on Trade between the ECAFE Region and Europe,
Manila, 1953), the geographical distribution of trade of ECAFE

63
JAPAN'S TRADE WITH soUTH AND SOUTH-EAST ASIAN C)OUNTRrES
10 countries, is as follows:
Table 27. The Geographical Distribution of Foreign

Trade of 10 ECAFE Countries.
Import

1928

1938

1949

1950

1951

Total(milliondollars)

2,638

1,645

5,705

4,633

7,OOO

V.K.

24.9%

18.7%

18.0%

15.2%

13.9%

ContinentalEurope

18.0

21.5

14.2

14.1

IZI

U.S.A.

9.1

12.4

20.6

16.7

16.8

Japan

5.8

8.9

3.8

5.6

7.9

Export

1928

1938

1949

1950

1951

Total(milliondollars)

3,152

1,900

4,350

5,425

7,804

U.K.

14.6%

IZ5%

14.9%

12.0%

15.0%

ContinentalEurope

21.1

22.6

17.0

17.9

18.5

V.S.A.

18.6

17.4

18.7

21,8

17.9

Japan

6.2

6.3

2.4

3.8

4.6

Note: ECAFE 10 countries are Burma, Ceylon, Hong Kong, India, Indoehina,
rndonesia, Malaya and Singapore, Pakistan, the Republic of the Philippines, andThailand.

As to the amount of capital goods imported into this region,
the share of Japan is negligible as compared with that of United
Kingdom and that of the U. S. A., as is shown in the following table.
Table 28. Import of Capital goods into 10 ECAFE Countries.
(Monthly average, million dollars)
1952

1951

1950

(Jan.-Jun.)(Jan.-Jun.)(Jul.-Dec.)(Jan.-Jun.)

U.K.
U.S.A.

33.4

33.5

38.3

42.5

45.3

20.0

14.4

19.7

25.8

26.9

Japan

1.4

3.3

4.1

4.0

2.0(Jan.-Mar.)As Japan's exports toother consumption goods,that the door to consumer(Jul.-Dec.)

this area have been mainly textiles andit is a matter of great concern for Japan

goods may some day be closed when the64 FVUKUO KAWATA
industrialization in this region makes progress, It is, therefore,
imperative for Japan to lay stress on the export of capital goods
instead of consumers' articles. But unfortunately, Japan's competitive power is very weak in large-scale capital goods, althoughthat in textiles is fairly strong. Japan, however, has a comparativeadvantage in light machines, such as bicycles, sewing machines,
spinning and weaving machinery, small engines, etc.' It is advisable
for Japan, at present, to endeavour to expand the export of theselight machines.
Table 29. Comparison of Prices of Japan's Machinerywith International Prices. (unit : dollars)PriceinJapan
4111GT

Cargoboat(DWI15000)

274!DW

ElectricGenerator
BoilerInternationalPrice

315!GT

210!DW

3,7501T

2,800!T

970/T

6301T

RailwayWagon

9,070

5,800

RailwayLocomotive

85,313

76,OOO

Truck-chassis

19,OOO

12,OOO

Bicycle

34.65

53.76

DieselEngine(10-11H.P)
CottonSpinningMachinery

547-578820

280,OOO

320,ooO

SewingMachine(HA-1)

40

110

Principal Sources:

Department of Finance, Annual Return of Foreign Trade of Japan.
Goverment General of Chosen, Table of Trade and Shipping.
Goverment of Taiwan (Formosa), Annual Return of the Trade of Taiwan(Forrnosa).
Economic Counsel Board, Japanese Economic Statistics.
U. N. : Economic Bulletin for Asia and the Far East.

Ministry of rnternational Trade and Industry, "Tusho Hakusho."(The Present State of Japan's rnternational Trade)

Professor of International Trade,

Kobe Universily* A Survey made by the Ministry of International Trade and Industry reveals

the fact that Japan's light machines are fairly competitve in the world
market, as is shown in the table No. 29.

65

THEEXCHANGE CONTROL POLICY IN
POST-WAR JAPANBy MAsAHrRo FuJITA
I, INTRODUCTION
Japan, has been kept under the closed economy system for along time (through pre-war and during the time of war) but by thesurrender a connection has been made with the international economy. However, a new start into the open system was unfavourable,
for the question of foreign exchange rate was not yet fixed to asingle form because of the moribund situation of an occupied
country.

On April 25, 1949, the single exchange rate was established:
U.S. $1=\360. This fact was enough to declare the launching of
new-Japan. We can say that the Japanese economy overcame its
frenzied inflation in the post-war period and took steps towardbusiness stabilization. First of all, the exchange rate control afterWorld War II was intended to recover the ruined exchange market
and the exchange rate by the mechanism of nationalization. This
reconstruction process of our economy was not merely considered
as an independent problem that concerned only to exchange but as
one aspect of the economic reconstruction which included the wholereconstruction of the foreign trade.
The exchange control is a coordinate concept against laisse2-fairein exchange, which is understood to mean the exchange policies
adopted after the abandonment of the gold standard, and comprises

policies of exchange control and exchange monopoly, may be
divided into three forms as follows:
1. Normal control : the establishment of a single oMcial exchange

rate and the maintenance of it. The direct exchange restriction of
preventing capital flight that arises from disequilibrium of interna-

66 MAsAHrRo FUJITA
tional balance of payments.

2. Free exchange control: the movement of rate is admited tosome degrees and the domestic inflation is allowed to reflect on thefree rate and thus the intention is to relax worse inflation effects

on the export and the import.
3. Multiple exchange control : this is a method which establishes
several rates besides the central rate, different rates are fixedfavourable to import of the emergency goods and on the contrary,
unfavourable to the luxury goods. Moreover, for exports various
rates are adopted discriminating their importance of the profit. But
the post-war controling policy has been derived from the worldly
dollar shortage that was caused by the changing economic structure
in all the countries in post-war period.

This work tries to study the conditions that made the establishment of the single exchange rate necessary, which is the central
question and then to analyse the stability of ty!360 rate.

II, MANy MEASURES OF ExCHANGE IN POST-WAR PERIOD(1) In post-war period, our foreign trade was carried on by
the form of "Government Trade". BUt this differed entirely fromthe U.S.S,R. or Communist China's nationalized trade. Ours was
carried on in the following form: (a) Board of Trade (establishedDec. 13, 1945) (b) Board of Economic Stabilization (especially
Section of Finance and Monetary, Section of Trade) (est. Aug. 1946)(c) Trade corporation (est. March 1948) (d) Carried on relations
with GHQ in which purchase meant export and oMcial sale import.
In this case, what we must notice is that selling yen price has no
relation to foreign or international price but depended upon thedomestic price only. In other words, the export price is based on
its domestic fixed price or the cost accounting of the producer. As
the imports were sold to the demander at domestic fixed prices,
the exchange rate or the conversion rate with the foreign currency
was unnecessary. With regard to all commodities, they had all differ-

ent rates, and there were no rate to apply for remittance in general

THE EXCHANGE coNTROL POLIey IN POST-WAR JAPAN 67
and remittance was blocked.
( 2 ) However, there was military rate, fixed for the commercial
relation with GHQ It was established to provide their convenienceof daily life. During this period, infiation steadly advanced to,high degree. The attempt at contraction or reproduction didn't
bting relief. At last, our economy confronted economic crisis.
Table 1. Changes of Military Rate

Dec. 31 1945 $1=\15
March ll, 1947 $1=\50
March 12, 1947 Åí1=\250
Åí1 =n \160

July 6, 1948 $1==\270
Åí1=\1080

Jan. 8, 1949 Sl=\350
Apri1 25, 1949 $1=\360(3) At this time our government tried to overcome the crisisby the following measures,(a) Monetary emergency measures exchanging new and oldyen. Feb. 1946.
(b) The closing policy on war time compensation. (April 1946)
Yet, there was not any improvement in such situation for
all the determination of the government to economic reconstruction.

(4) Establishment of Reconstruction Financial Bank (Jan.
1947). But contrary to expectation, this resulted in Fukkin (R.F.
B.) infiation. At this period, economic policy was the so-called
inclinative (priority) production system adopted to overcome coalcrisis (Nov. 1947).

(5) On the other hand, the exchange fund and domestic
currency fund related to imports, in this period from the surrender
to the end of 1947, were kept as independent fund, their receipts anddibursals costituted different accounts.

(a) Yen currency constituted our "Trade Fund Special Account".
(b) All foreign currency constituted "Dollar based special ac-

68 MASAHIRO FUJITA
count" which was in charge of the American authorties.
All these measures and administrative trials are, but this is suficent

to show the imperfect exchange mechanism and the lack of an
exchange rate.

(6) Here, however, we have an important government order,
which we cannot pass over without noticing it. It is the G.H.Q.
order permitting a restricted private import and export trade (Aug.
15, 1947). The order granted negotiation to be arrived with the vis-

iting buyers only about the (a) quantity of goods (b) quality ofexported goods and (c) deliberating data, but excepting the pricewhich is the most important item in trade negotiation. Though
there was no advance in exchange aspect foreign trade advanced
one step from blind trade to at least one eye trade. Though wewere anxious to have a single exchange rate established for it wasa movement from the controled trade to free private trade, we had
to be satisfied as our first step at this initiation of free private

trade. As we mentioned-above, the actual Japanese econmic conditions of the time were monstrous as the result of inflation. As
commodities prices were much unbalanced, the direct connection
with the international economy, would have surely destroyed Japanese industry.

(7) The multiple exchange system was the policy adopted toovercome these dangers, and at the same time connecting our
economy with the international economy, and thereby making private
trade workable. The multiple exchange system in Japan differs fromthe system in the Latin-American countries which has been executed
after the world crisis. We have to call our system "Price Ratio
System (P.R.S.)!' The rate of conversion is fixed for each com-modity or group of commodity calculated conversely from the rateof domestic price versus international price (American price) ofcommodities, on the foundation of the past government trade experience up to that date, The purpose of adopting this system was toconnect our closed and separated economy with the international
economy. As shown in table 2, the general trend is the establishment

1rtE EXCHANGE CONTROL POLICY IN POST-WAR JAPAN69

yen rate reflecting the unbalanced condition, low rate forandhigh rate for exports. 'Table 2. Multiple Rates of Exchange
on Jan. 31, 1949 (unit =yen)
Import ratecottonledxOpMoerSttifisgSe 2:g

pig-iron 67

iron ore and concentrates 125

coking coal 178

steel 147

rock-phosphate 154

bauxite 158
potassium82
crude petroleum 284

crude (raw) rubber 154

hides and skins (pelt) 120

chemicals 200-350

salt 103
sugar
l77
wheat
165
wool
120-140wood and lumber 77

Export ratecotton yarn 259 bicycle 510

cotton cloth 250-420 rnotor 340

silk fabrics 300L-420 transformer 320

staple fibres 300 radio--set 550

rayon goods 300 coal 320

wollen goods 350 cement 320

wollen yarn 300 caustic soda 200

bar steel 240 tinned goods 300

steel ship 500 mandarin orange 340

steel tubes 300-360 tea 330

thin board 340-380 wood (lumber) 320-420

galvanization (board) dyestuffs 500

zin plate 390-400 skin goods 580

locomotives 300 mirror 600

automobile==motor car 430 bamboo-ware 450

raw silk 420 ceramic ware 600

imports

70 MASAHIRO FUJITA
As a whole, the rates for import goods are cheap, the rates forexport goods are high, for they are derived from the remarkableinflation in Japanese economy. Moreover, this implies that importto Japan in inflation was necessarily to be overvalued in yen, viceversa (exports: undervalued in yen).
For instance, the past fixed price of cotton and wool was cheap(cotton: \80, wool: \120), because these goods can not be at home
and are to be imported as raw materials.
Still the cheap rate of imported foodstuffs (wheat price : \165)is derived from the view-point of the social policy. At the same time,international price of foodstuffs in those days is higher than normal,

and its import price has relief significance. So, the price wasestablished in favour of yen value. Of the imported goods, miscellaneous goods contain mirror, radio-set, bamboo products and ceramic

wares. These are rated high. This means that export possibility
is found only in the cheap rate of yen, because of the heavy risingin fixed or dark market prices because of insu'thcent control of thesecommodities. The following tables show the change of the prices.
Table 3. Wholesale Price Index (I)
1937
1938
1939
1940
1941

1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952

Japan

U. S. A.

U.K.

100
105
117
130
140
152
162
184
279

100
91
89
91
101
114
119
121
123

1293
3824

140
176
191
180
187
198
192

100
93
95
126
140
147
150
153
155
161

10160
16580
19490
24700
27300

Source: the

176
202
212
241
294

France
100
105
139
171
201
234
265
375
648
989
1712

1917
2166
6097

Germany(West)
100

155
158
191
207
345

year book of the Asahi 1949,1953.

THE EXCHANGE CONTROL POLICY IN POSI•-WAR JAPAN
Next, observing from another aspect:
Table 4. Wholesale Price Index (II)Japan U. S. A.
Bank of Japan W. P. I. U. S. A. W. P. I.
base:1937="-100 1913=100 base:1938=100 1913";-;1001913 64.7 100 45.4 100

1947 9430 14575 96.4 2123

1948 16970 26228 104.4 230.0
1949 22900 35394 99.2 218.5

Apr. 1949 23110 35718 99.9 220,O
June 1950 22380 34590 100.2 220.7
Dec. 1950 26860 41514 112.1 246.9
June 1951 34480 53678 115.1 253.5
Dec. 1951 35624 55060 113.5 250.0
June 1952 34764 53732 111.2 244.9
Dec. 1952 34237 52917 100.6 24L4
Mar. 1953 35113 54271 110.1 242.5
May 1953 35037 54153 109.8 241.9

year book of U. N. and Monthly report of bank of Japan

calculated from Statistical

Table 3 and table 4 give the foundation of calculatingpurchasing
power parity later on.
Table 5. Dark Market Price Index

consumer
capital goods-.dlgg,o,oDec. 1946
Dec. 1947
Jan. 1948
Feb. 1948
Mar. 1948
June 1948
Dec. 1948
Jan. 1949
Feb. 1949
Mar. 1949
Apr. 1949

May 1949
June 1949

222
558
596
617
646
767
781
788
794
809
842
833
831

ls

,o

1946=100

137 1937

418 1947
439 1948
456 1949

473 1949

479 t,
501 ll498 tl503 1950

494 tl483 11475 1952
376 !/

EffectivePricecapitalconsumer

goods

1
59
123
188
1-3 176
4-6 186
7-9 190
10-12 2031-6 208
7-9 225
10-12 259
1
281

2

296

goods

1
96
167
209
208
219
206
202
196
193
195
210
216

71

72 MASAHIRO FUJITA
Dec. 1950 580 443 1952 3 314 218

Aug. 1951 630 576 !i 4 344 224/1 5 358 228!1 6 - 220
the Asahi year book 1948, 1950, 1953. From "white paper" 1949, 1950, 1953.

According to Economic White Paper 1949, Japanese trade level shows
as follows. (if we regard as 1934-1936=1oo)i)

import in 1948 18, import in 1949 29

export ll 7, export ii 16
Amount of export to gross national expenditure shows.

1934'36 19 %o, 1949 60/a
Next, the proportion of Japanese trade for gross amount of world
trade :

Before World War 1949
import 34o/o 1.4a/oexport 34 e/e O.9%
Thus, the present real level of our trade is lower than pre•war level.

(8) Private trade took definite shape by P.R.S. and began to
substantially working in the form of B.S. Contract2) during three
years after the surrender. According to this system, trade arrangment

between foreign buyers and Japanese exporters did not need amedium of Trade Board and Trade Corporation. However, this was
confined to only export arrangement. Import depended completaly
upon government controled import.

(9) The imported price was investigated before the fact
through the Floor Price System, preventing dumping by exporterand forced price cutting by foreign merchant.
1) Acoording to Economic White Paper of 1950.
the level of trade quantity in rnain countries at 1949.

U.S.A. U.K. France Italy India West-Germany Japan

export 202 134 142 85 55 46 16
import105 83 93 119 113 106 29
base: 1937 =100
2) BS contract system means that after return of private trade, between
private trade merchant and foreign trader concluded buyers and suppliers

system.

THE EXCHANGE coNTROL POLICY IN POST-•WAR JAPAN 73
So long as the export price exceeded Floor Pzz'ce,3) permission,on the request of private merchant was given unconditionally.
(10) But, on the foreign exchange side, the exchange businessof private bank remained under restriction, and the activity confined

to convey order to the branch of foreign bank. The contents ofbusiness is nothing but acceptance of exported exchange andexamination of documents. To purchase foreign exchange is impossible and the yen price of exchange only operates to transmit
payment from Trade Fund Special Accounts to the exporter. Besides,
import chiefiy was administered by government, so Japanese exchangebank could not touch the import exchange at all.

(11) With regard to Foreign Currency Fund, the Japanese hadno authority over it, for it was quite under GHQ management.
When private trade was reinstated, the following exchange settlement banks were appointed. Tokyo Bank, Sanwa Bank, Osaka
Bank, Chiyoda Bank, Japan lndustry Bank, Kobe Bank, Fuji Bank,
Tokai Bank, Daiwa Bank, Saitama Bank. Total of these banks was
11 in number and 56 branch oMces. Moreover, in addition to thesebanks, the Hokkaido Bank and Nippon Kangyo Bank were appointed.
At the same time, foreign banks began business in Japan they
were National City of Bank, Bank of America, Chase National Bank,
Hongkong-Shanghai Bank, Chartered Bank, Netherland-India Commercial Bank, Indochina Bank, China Bank.
(12) The following events were remarkable incidents in the
period :(a) May 1948, the Young Mission visited Japan making preliminery survey to establish single exchange rate.
(b) Aug. 14 1947, Establishment of the Export Import Revolving3) Floor Price rneans the lowest dollar price that is the lowest dollar baseprice by F. O. B. as to Japanese export goods after return the private tradeAug. 1947. This calculating, is possible as follows. Floor Price=prime
cost+propriety profit (in referen to oversea's price by each good). G H• Q•

did not permit exporting contract under this price. The purpose of thatsystem, a) preventing of flight of foreign exchange b) preventing of unfair
competition or dumping by reason of lacking in a single exchange rate•

74 MASAHIRo FuJrTA
Fund was ordered as the Trade Financial measure (Dec.
1947. enforcement.)(c) The order of 9 principles of economic stabilization was
issued. Dec. 1948, LThe order aimed to stop the post•war
economic confusion that arose from inflation. Never-theless, the forecast of Japanese economic reconstruction bypromoting Trade, by stabilizing inflation by multiple exchange system and such private trade is gloomy. The policy
to be taken is to return to private trade full swing by
establishment a single exchange rate. And the question in
hand is to secure the economic stabilization at a stroke underby the enforcemet of defiation and anti-inflation policy.

(13) This was the 9 principle policy founded on the superbalanced budget so-called " Dodge plan ". Mr. J. Dodge, presidentof Detroit Bank, visited Japan at the end of Jan. 1949. He asserted
the first principle of economic recovery and was going to fundamentally revive the frail Japanese economy, which contained many
conflicting elements the growth of a green house economy. Fromthese necessities, he suggested net economic recovering policy
rationalization and self-reliance ($elf-supporting) is his statement(March 17. 1949.). We will describe the Dodge plan later on.
• (14) Mr. Rogan. W. (governor of Federal Import, Export Institute of WestGermany) visited Japan (Jan. 1949). He recommended
the so-called "Rogan plan" for promoting the Japanese trade.
1. Speedy transfer from administration trade to private trade.
2, Many sided conclusion of trade agreement for many countries.
3. Advance and development from hunger export to full stomach

export. The feature of Rogan plan was to give priority toimport, and was in good contrast with the Dodge austerity
policy.

(15) The establishment of Foreign Exchange Control Board(F. E. C. B.) Mar. 1949.

(16) With the abolition of Trade Corporation which was incharge of the control of Special account in Foreign Exchange Fund,THE EXCHANGE coNTROL POLICY IN POST-WAR JAPAN 75
this function was transfered to EE.C. B. (F. E. C. B. was abolishedoct. 1952, its business was transfered to Foreign Exchange Control
Section of Finance Ministry.)(17) In Jan. 1949, Trade Board and E.S. B. began to negotiatefor \350. exchange rate proposition.
(18) After Jan. 1949, the highest exchange rate of import andexport was \350 and \425 respectively. Since Feb. 1. 1949, theexchange rates of textiles kept four kind bases \3oo, \'350, \4oo,
as for general commodities, the changing rate of foreign currencybase price and yen (currency), base price as a rule not to be lessthan \450 or i'-450.

(19) On March 1949, yen rate by purchasing power parity in
America shown. (U. S. $1 =\270). However modification of effective

price shown (U. S. $1=\419: measured by Nippon Kangyo Bank).
In the course of these process, since April 1, 1949, textiles rate

shown three kind bases \33pt\'350, \420. Next, government
announced preparation measures as follows :-(a) The Dollar rate of exporting goods shown only \3oo.
(b) This rate retrace April 1949 and to be carried into effect.
(20) At last, the single exchange rate was established on Aprilas, 1949 in reply to the GHQ order April 23, 1949. The establishment of the new rate had following signification:-a) The multiple rate undervalued yen for export exchange rate
and protected the exporters of less yen income. b) import exchange
rate was overvalued in yen and protected the people from much yen

expenditure. c) unfavourable balance of trade was relieved byamerican relief. d) as a result, the so-called stilts economy was

overcome which was due to shortage of yen fund. e) For thispurpose, "Trade Fund Special Accounts" heretofore in use waschanges "Trade Special Accounts" and this Accounts supplies yen
fund of trade balance which refiects a single exchange rate.

(21) Visit of L. Friel Mission (Sept. 1949). The Recommendation of this mission; a) abolishment of Floor Price systemb) Return to wholly private trade c) Simplification of trade
procedure d) Transfer to Japanse banks as soon as possible, of the

76 MASAHIRO FUJITA
banking business which SCAP and GHQ managed.
(22) At the same time, Mr. J. V. Mladek (Director of I. M. F.)

visited Japan and recommended the first principle of Import,
adoptation of multilateral settlemet system.

(23) From these situations, there was abolition of Floor Priceon Oct. 1949 (except raw silk goods), transmission of private tradeexport from Dec. 1 (by the order Oct. rs), import from Jan. 1950.
Export did not need grant before the fact, import come to adopt theforeign currency budget allocation system Foreign exchange bankallocating foreign exchange
Let us pick up the chief measures(a) Grant of mail foreign exchange on America. (Nov. 30).
( b ) Return of private trade, especially carried into effect Foreign

Exchange Act and control of Foreign Exchange Act (Dec.
1949).
( c ) Abolition of Floor price system to and adoptatation of Checle
Price4) system.

(d) Import Licence System.
(e) Foreign Currency Allocating System.
(f) The control of Foreign Currency Fund and Yen Currency
Fund through the Foreign Exchange Control Board.
4) Check price were take up as standard of calculating the lowest export
price. This means adoptation of the adjusting doctorine between actual
export price and international market price rather than the doctorine ofcost price. Since March 31, 1949. Floor price, for cotton and cotton yarn
were abolished on account of (1) technical dithculty of determining Floor
price and application Floor price. (2) cost of working arise difference
through the producing equipment and ability of enterprise, so establishmentof indiscriminate frame or restriction is in adequateness. Therefore, checkprice means as follows the price of export goods=cost of raw materials+
cost of working+propriety profit (charge). In above formula, the lowest
price of cost of raw materials is check price, the lowest price by check pricefluctuate with the difference of cost of working. The purpose of this pricesystem, is (1) preventing of dumping (2) and complete maintenance of raw
cotton price. This determining standard is actual rate of cotton yarn one

cloth in Arnerican market in reference to Journal of Commerce, is two
rates bases. But, there are not distincted by dollar base and pound base.
Though beginning of execution, shown 5.e-e down of American market rate,
thereaEter was corrected 10.e/e down.

THE EXCHANGE CONTROL POLICY IN POST-WAR JAPAN 77(g) The past exchange buynig and selling system which madecentral SCAP and the system of these business carriedon by monopolistic foreign bank was abolished. By the new
system, parent bank accorded with Foreign Currency Control
Board (F.C.C.B.), to supply foreign currency to privatebanks was assured. The transaction (purchase or sale) of
foreign exchange become free, yet holding of foreign currency was not permitted, and the authorities adopted theconcentration of foreign excharige system, Which the outbreak of Korean hostilities on June 25, 1950, the boom of
special demand appeared and are going now on, but theconcentration of exchange system, the allocation of foreignexchange system are in force.

(24) On Jnly 1. 1950, the measures changing yen base in
non-military transaction were executed. The concentration of exchange in Japan was first realized in the whole concentration offoreign currency to the hands of the American authorities, then inconcentration with the foreign exchange controled board to Japanese
authorities, then concentrated in the Finance Ministry, until it atlast returned to free system. But, in this system there existed
concentrative exchange rate The concentrative exchage rate has

to be cheaper than the customer rate of private bank, Look at
Table 6.
Table 6. 0ficial Foreign Exchange Rateu. s.$ Åíconcentrativeratelll,))),T.,I,,T.i,iil•,,., ////-,33g6,,O•i,,3.r5 ./ll/i,g,,O,,8•l,,92i

custo-errate (i.:l,g',I,i,I,gl,,., ///.g3g6gi:'20/? .//i,g,gi.I,:7g

The main purpose of exchange concentration system is as follows(a) Rational distribution of foreign currenay==exchange whichlack exchange allocation system, (b) The restriction and correction of import, (c) This is equal to the purpose of national

78 MASAHIRO FUJITA
economy. In order to accomplish this object, the allocation byeach country, and each commodity needs and also the foreign
currency budget is determined by each region as Table 7.
Table 7. Regional Distribution in the Allocation of Foreign

Currency Budget(A) established countries of Agreement for Trade1) sterling area countries U.K, and so on2) open-account countries France and so on3) the rest of countries Belgium and so on(B) unestablished coutries

4) Canada, U.S.A.
5) the rest of established Countries

III. DoDGE's STABILrzATIoN PLAN AND A SrNGLE ExcHANGE RATEThe Dodge stabilization plan originates in the classical theory
that expect the automatic regulative operation or price effect bymeans of monetary stabilization and is about to attain the adjustmentof foreign exchange. Therefore, a strong monetary contract policyor deflation policy was chosen for the purpose of monetary stabilizat-

ion. Most remarkable point in the Dodge policy was the resolute
enforcement of the fast yen stabilization policy. Above all, it has
been concentrated in the establishment of a single exchange rate.
On the other hand, the Dodge plan also adopted dis-inflation policy.

This meant the stabilizaton in depreciated currency value. Though
this policy is not stabilization policy of enforced defiation policy,

which Mr, Junnosuke Inoue executed 1930, but it is a neutralizing
measure by monetary policy. However, we find the following assumptions in this case.
(a) Yen rate which is concrete standard for stabilization represents the actual rate (real rate measured by purchasing
power parity at that time).
(b) Avoided to adopt the policy which will change the present
price level.
(c) Not to practice positive deflation policy consciously beyond

the reactive monetary contract, excepting the stopping theTHE EXCHANGE coNTROL POLICY IN POST-WAR JAPAN 79
increase of the money.
The first of the assumptions had many diMculties in those day$.
For the second point, price control becomes necessary, but it reverts

to the irrationality of ideal classical free economy which can never
be attained by a classical method.

The establishment of a single exchange rate based on thestabilization policy of reducing the government grant and increasing

tax is forced to advance economic rationalization and to shift thereaction on small and medium-(sized) enterprises.

IV. A SINGLE ExCHANGE RATE AND PURCHASING POWER PARITy5)
On April 25, 1949. U.S. $1=\360 rate was calculated on thecomparative relation of purchasing power parity in Japan and theU.S, A. in 1937. (U.S. $1 =\3.50)
As a fixed price (wholesale price) became a subject of discussion in those days, and prices of the commodities other than gold

were main issue. Japanese solid gold price that was calculated at5) Since Classical School, the views as to the rate of exchange have developedin the fol!owing three stages (D The oldest was that the exchange rate i.
e. the price of gold in all countries should be fixed, leaving the prices ofother commodities to follow their own movement; the international equilibrium being expected to be estabiished automatically through themechanism of the gold standard system @ The second was for the artificial
adjustment of the price of gold in order to secure the best possible stabilityof the price leveL That means the suspension of the gold standard andnationalistic system of managed currency came instead. @ The third, now
prevailing, aims at the "elastic stability" of the rate of exchange among
countries, as indicated in the Bretton-woods agreements, admitting therenewal of the price of gold of any one country only for the purpose ofcorrecting "the fundamental disequilibriun" of that country. Neither isthe absolute pegging nor the railles changing of the rate exchange is now
in vague. There still remain, however, rnany problems of interpretation
as to what is really meant by the so-called "fundamental disequilibrium "and its practical application is by no means easy. Here, all over again, weemphasis that the rate of exchange is nothing but the parity of gold
price between countries. Under international gold standard, the parity ofgold price between countries was the rate of exchange, but even theunequal present world's conditions of production and distribution of gold,
both dollar and pound under a given restriction

80 MASAHrRO1 FUJITA

solid gold weight per lg==O.88716g (lg=:U.S. $1•125) Å~ 36o-, resultsin lg=:\405. Let us show the movement of the purchasing priceof gold in the following Table.
Table 8. Changes of Buying Price of Gold

June 22 1933 gold lg=\8.05

Apri1 6 1934 lg= \2.95
Jan. 11 1935 lg==\3.09
lmonrne==\11.58

May 6 1936 lg==\3.50
May 14 1937 lg==\3.77
May 2 1938 lg= \3.85

Jan. 20 1946 gold lg==\17.00
silver lkg= \310.00

July 17 1947 gold lg=\75.00
silver lkg==\1300

Sept. 25 1947 gold lg==\150
silver lkg== \2700

Aug. 13 1948 gold lg==\326
silver lkg== \6325

July 22 1949 gold lg==\385
silver lkg== \7288

1950 gold lg=\401
silver lkg :\9700

Feb. 1953 gold lg==\405
Granting the exchange rate as established and gold price determined,

itself are regarded in the same light with gold. And the rate of exchange
becomes the typical currency of concentration multilateral settlernent or

payment and express. In the form of the rate or proportion of rnoneyamount oÅí ewn country.

gold production unit=solid ounce

1944 1945 1946 1947 1948 1949 1950

Japan 396579 128410 43154 55029 69060 84492 132332
U.S.A. 1022238 915403 1462354 2165318 2025480 1921949 2288708
caleulating in gold 1 ounce=U. S. $35 unit==$mi11ion

1937 1945 1946 1947 1948 1949 1950 1951
Japan 25.89 2.96 1.40 2.42 3.49 4.62 5.44 6.62
U.S.A. 143.92 320.04 51.17 75.79 70.89 6Z27 80.10 66.32

THE EXCHANGE CONTROL POLICY IN POST-•WAR JAPAN 81
at the assumption of 1 ounce gold==U.S. $1 in America, and if we
intend to study the consequence of \360 rate in Japan, we cancalculate the foreign exchange rate from the purchasing power
parity as in Table 9.
Table 9. Foreign Exchange .Rate
oMcial (military)ta rate calculating by purchasing power parity

U. S. $1==\3.441 U. S. $1= \3.50

1937 3.441 3.441 3,50
1938 3.699 3.96 4.267
1939 4.265 4.52 4.601
1940 4.267 4.91 4,780

1945151531.947.80 32.27
7.94
1946
1947ZdeO
50 73,141948
132.0478,65
187.16
1949 360 316.13 322.77
1950 361 353.05 350.21
1951 361 424.29 432,25
1952 361 493.74 509.89(1) The results come from combination of Table 3 with Table 4 isselling rate until 1940.

This Table shows comparative rate of wholesale price index in two
countries. Moreover, Table 10 shows another interesting results.

Table 10. Exchange Rateaccording to Table 4, purchasing power parity U. S. $1 == \ 2.02

1913 2.02 6) 1950 331.75

1937 2,02

1945
1951
416.51
1946
1952
443.45
1947 138.60 March 1953
451.97
1948 230.25 May 1953 452.11

1949 327.89

According to wholesale price, the results of U.S, $1= \316-\
6) 1913 correspond to Taisho 2. In this time, the rate of exchange has been
almost equal to gold parity $1==\2.02

82 MASAHIRO FUJITA
327 on April 1949. But, in the Korean hostility period, the actual

rate almost equals the othcial rate and shows U.S. $1=\350 level.

There-after, owing to the rise of domestic prices, exchange rate
shows \4oo level in 1951, 1952 and 1953, continuously below oMcial
rate. Calculating on consumer Pn'ce index (C.P.I.) the result is
as follows taking standard year of 1934--1936.
exchange rate : U. S. $1 == \3,44

Apr. 1949 U. S. $1==\440, May 1953 U. S. $1==\492.
This is higher than the existing rate. In other words, 37o/o
overvaluation of yen. Calculating the effective price, the exchange
rate is \3ss in April 1949. The most recent calculating exchange rate

was \530. The calculating the purchasing power parity, advocatedby Prof. Cassel G. is acknowledged as powerful data for presuming
exchange rate. But we cannot say that this theory is a perfectone. Perhaps, the theory of purchasing power parity was foundedon the following assumptions and the quantity theory of money.
a) Perfect free trade to be in existence.
b) Identical degrees of change in all commodities prices.
c) Demand for foreign currency is confined to purchasing of goods
and services in the competent foreign country. The purchasing
power parity shows by price index which makes the standerd
year 1oo, so assuming commodity price of gold in a given
period on past, is nothing but determinating the price of ingold consideration of later price fluctuations (rise and fall) inother than gold commodities.
According to our viewpoint, that is, the parity of gold pricebetween countries. As above-mentioned, unless holding of gold as
medium of payment or settlement under Free Trade System fails towork, the price parity of all commodities will accord with theparity of gold prices. However, the actual situation is not always
so, at the present time, gold still functien as the world money.
Furthermore, so long as gold is international measure of value
and international standard of price, the fluctuation of the price ofcommodities are measured by gold price standard,

THE EXCHANGE coNTROL POLrCrY IN POSr-WAR JAPAN 83
Therefore, it is necessary to think that foreign exchange rate

turned from the parity of gold price into other than gold commodities.

(1) Establishment of a single exchange rate and its effect on
the industry.

The effects brought about by the establishment of a single
exchange rate are various. For instance, in the cotton industry its
prices can be calculated in the multiple rate as follows.

American cotton (Iyb \ 80.57

Cotton yarn O, \1os.97
Cotton stuff (1 cut) =necessary raw cotton as cotton yarn (U. S. $4.99-- \408.98)+cost of working (\542.30)+charges or miscellaneous
expenses (\180)-miscellaneous income (\8.07)=F. O. B. \1,226.56(==U,S. $90.40). Therefore, the exchange rate of calculating is qualto \130.48. If this is more than margin, cotton stuff price is equalto \109 and cotton yarn price comes to \185. In U.S. $1==\360
calculating from, imported raw cotton price is C. I. F. (U. S.) $176=\7,7360, this shows to be 5.5 times against past selling price ofgovernment (property)=:\14185. Such being the case, if raw cotton
price is constant with charges and cost of working, the cost of
production per bale turns to be \80,668, and export selling pricecomes to U.S. $272=\9,7920. Yet, in the case of cotton stuff, costof production is equal to \2,574.98 and selling price is \3,384, thisleaves the margin of \1,7352 and the cotton stuff is priced at \809
in cotton yarn. In spite of the heavy rise of imported raw cotton,
the profits realized by the rise of selling price is large. Though,in this form, there are some aspects to which full considerations
were not given such as the cost of services (wages and salaries),

depreciation, profits, premium. But these were common to allcommodities which established the fixed prices at that time. Owing
to these conditions, the relative dominant position of cotton industry
caused by the establishment of a single exchange rate is unchanged

after all. A single exchange rate gave the cotton industry theopportunity for increasing the profit and a standard was given

8t MASAHIRO IF'UncA
to the business. Moreover, a single rate made the reconstructionof cotton industry easy. However, the measures were favourable
to large scale business such as Big 10 Cotton Spinning Co., andnew-starting enterprises were not so favoured. Thus, the effectof the new exchange rate was profitable to the cotton industry,
but not so to many other industries. For instance, we can find agood example in the case of raw silk, as can be seen in the following
figures :--In the raw silk industry, showing before the establishment of
the new rate.--raw silk •@ F. O. B. (U. S.) sa5e.53 =\137827.

comparative rate between Yen and Dollar U.S. $1--•\393.
Therefore, balance is \33 (\393-\360=:\33).
So, in order to export at U.S. $1, we have to cut down thedomestic purchasing price of raw silk.7) The promotive policy ofexport for raw silk is nothing but the reduction policy of producing
cost. Again, let us take up the iron industry--K)specially pig irotu

If the raw material were sold by the government at U. S. $1=\360

7)calculatiag method of raw si'lk is as follows
raw silk per one' bag. (21 middl 2 A gauge)<D selling price of producer\129930

the neÅëe$sary sum of eocoon
collesting commission of cocoon
cost of working of silk-reeling@ a transation tax@ fixed charges
packing charges
shipping charges
fleight charges

miscellaneous charges
money rate of charges@ charges for costody@ money rate
@ transit insurance due@ export commisst'on
total F.O.B. price (yen)F. O. B. price (dol!ar)
Ratio between yen and dollar\ 73ooO\ 2209\ 54121\ 2559

\ 956
\ 337
\ 332

\ 21

\ 260

\6

\ 144

\ 1633\ 128\ 2437\137827
ss50.53
U. S. $1 == \393

THE EXCHANGE CONTROL POLICY IN POST-WAR JAPAN 85
rate, the increasing products of pig-iron will become \9,OIO per 1
ton8) as the existing price of producer's in April 1949, shows \14,070,

that is, brought about the rise in price by 64o/o. This meansincreasing in the price of iron and steel. Though we like to proceedwith the detailed analysis about all industries at the present time,

we regret that we have no room for that, and proceed to our nexttask.

(2) Concerning the calculating of the foreign exchange rate,
we quote a remarkable theory of Prof. Kito which is based on theliving level :-The quantity of commodities which a labourer in A country willconsume per month qa ', qa ", qa "'•••••• ,andthe corresponding prices per unit are pa', pa", p."'•••••• ,the quantity of commodities which a labourer in B country willconsume per month qb ', qb ", qb "'•f•••• ,andthe corresponding prices per unit are pb ', pb ", pb "'•••••• .

The comparison with consuming quantity me;'sured by the price ofA country for a month in both countries

ue2q.p. gv'grMagefh.e'ee,..geo,:,2:gilgeig,'
the comparison of consuming

by the price of B countrY commodities

t21!ge-2e- V]iÅíqbqa 2qL!pt-

2qaPa V/l2:Pa qa' 2iqaPb

For example, when the living life (==consuming quantity) in B
country per labourer per month is -l}- in A country,8) produring cost of pig iron
(D affection from imported coal (as raw material)={imported unit price

U.S.$27xrate of exchange li360+charges \370-present or current
price of coal \4225}Å~(original unit price of coal of raw material 2.5

tonximporting ratio of raw material 45%)==\6,567@ affection from iron ore=(the price of imported iron ore $16.25Å~\360+charges \100--current price of imported iron ore \2,400)Å~the original unit of iron ore 1.82tonxratio of imported raw material 38.9%)=\2,443 (D+@==r!T9,OIO

ss MASA}IIRO FUJITA
consuming commodities in A country $45/i inBcountry \90
The living level of \90, needs three times of the living level in$45 (from above-mentioned assumption). Therefore, foreign exchange
rate is calculated at $1.5=\1.
Exported quantity of A country for B country per month (measured

by A country money or money term) o
Exported quantity of B country for A country per month P
income of A country labourer per month mincome of B country labourer per month n-!2- and 2- express labouring month.

2
Therefore, the difference of living level n!
m
A country's foreign exchange rate of receiving quotation for
B country =R = iil't Å~ 8/3il-(Iaor Ibis income of labourer in A or B country per month,
8/I2- is the rate ef living level in both countries,Ia'

g/ ==Ib •'- R==I. I.bQb ---'S';Å~8' ".bL')

Qi2;For instance, o==\2700 and p==$4050
If the stabilized balance is attained on this condition, foreign excha-

nge rate is equal to \1==$1.5
However, for the purpose of above relation, the following relationmustsucceed. -e-=3o, -P-=gomn

In calculating the foreign exchange rate between Japan and America,
must use Table 11, Table 12, Table 13.
Table 11. The Wages of Labourer in Manufacture

Japan America

daily wages (yen) monthly wages weekly ($) monthly

1938 2.06 61.80 22.30 96.63
1939 2.03 60.90 23.86 103.39

87
THE EXCHANGE coNTROL POLICY rN POST-WAR JAPAN109.20

68.40
77.40
84.60
98.10

25.20

43.14

186.9446.08

199.6844.39

192.3643.74

189.54

1945

2.28
2.58
2.82
3.27
3.88
4.50

1946

19.89

116.40135.00596.70

1947

63.24

1997.2049.25

213.42

1948

272.888186.4052.07

225.64

1949

280.538416.oo

54.51

236.21

1950

304.469134.00

54.92

237.99

1951

39a26

11708.00

59.33

257.101952

394.7011841.00

66.61

288.6414805.oo

71.93

311.71

i940
1941

1942
1943
1944

March 1953

493.5029.58

128.1036.65

158.73

Statistical of U.N,
Book
Source:The AsahiBook
RevievvLabour
year 1953. Yea•rof Amerioa 1953, March.

For the above culculating we need the following table.
Table 12. For Arrteriea, Import a4d Export (million yen)

Export Import - conveKting in dollar
1930
1935
1940
1941
1942
1945
1946
1947
1948
1949
1950
1951
1952
Mar. 1953
With regard to the

506
536
569
or8

o
1472
1791
16894
30736
64548
66589

443
810
1241
572
14
22
3516
17631
37583
17os3815055625091

1224397069
of living cost, the.
comparlson

2on.8
480.9
441.8
574.9
428.5
753.6
768.2
66.5

following

may be used:-Table 13. Living Cost Index

America Japan

1948=100 1937=1oo 1948--1oo1937

60 100 -1937;:=:100

loe

table

ss

MASAHIRO FUJITA

125

1945

75

1946

81

136

27

1947

93

58

8750

1948

100

100

15170

138

19030

128

19493

3644

1949

99

1950

100

155
167
165
167

1951

108

180

151

21015

1952

110

183

165

22269

v.NoTE
CONCLUSIONARY

In the above $tatement, we mentioned the changing process offoreign exchange control system in Post-War Japan. Next, we remarked on the period soon after World War II from the government
control trade till the import automatic approval system through thepresent Pn'vate trade system, and have taken notice of the conditions

that accompanied the establishment of a single rate connected with

the Dodge plan. Thereafter, we have analysed the effect of thisnew foreign exchange rate on the industries. Since the establishmentof 360 yen rate, various views were advocated as to the appropriateness of the new level of the foreign exchange, especially inconnection with the gap between the actual conversion rate and theoMcial rate, so as to change the foreigns exchange rate. Meanwhile,with Japan's joining to the International Monetary Fund (I. M. E)

on May 11, 1953, the possibility of change was limited to thecorrection of the fundamental disequilibrium in terms of I. M. F.
agreement No. 4-5 clause. Therefore, such a move has to be madeafter due consideration. Since the outbreak of Korean hostilities therising tendency of price in Japan has been great which is more remarkable in the Japanese economy than with the American economy.9)
Therefore, if we attempt a hasty change of the foreign exchange
rate, we may bring an unforeseen disasters and didiculties in future,9) Comparison between Japanese and U. S. A. main commodities price.

U.S. A. price= 100(continue to p.p. 89)

THE EXCHANGE CONTROL POLICY IN POST-WAR JAPAN 89
Moreover, if the exchange rate is to be fundamentally foreign adjusted aiming at the stabilization of prices, it is not necessary to therate as under the gold standard (system). Many people in Japanese
economic world to-day are anxious to devalue the exchange rate.
But this is nothing less than approaching the actual or real rate
nominally (measured by the purchasing power parity).

The present emergency question of the intemational financetheory is world-wide dollar shortage, and recovering of convertibilityof pound sterling. In order to overcome these serious international
economic difficulties, the Relief Fund of the Marshall Plan and thewheat CyOattrOpn rayon raw-silk pig-iron bar-steel zinc coal copper avcrage

June 1950 76 70 62 98 59 66 97 159 95 97

June 1951 84 113 116 902 156 160 180 222 154 165

May 1953 102 92 83 89 133 121 155 227 125 134
Toyo Keizai Shimpo Aug. 1953

Supplementary notes 1)
Exchange control is the establishing policy of free exchange systemthat contain the establishment of a single rate of exchange, and inJapan changing process is the following Capital Flight Act 1931.
Rivision of Foreign Exchange Control Act 1932.
Foreign Exchange Control and Foreign Trade Control Act Dec. 1949•
Foreign Exchange Control Ordinance June. 1951.
Supplementary notes 2)
the exchange rate (for each country currency in has registered I. M. F•

by establishment of oMcial rate Apr. 25 1949) the exchange rate

shows yen

U.S.A. dollar 360.- Philippines peso 180r

pound
1450.80
g5nKa'dadoiiar 36or sUo"JtOh"teifricapound
1450.-

Australia pound 1160.64 France franc 111.60

Egypt pound 14s7.ss Hong-Kong dollar 90.-

Netherlands guilder 13s.7o Malay dollar 170.53

India rupee los.sl Indonesia guilder 135.31

Morever, the existing or current rate of exchange-

Gibraltar pound 1008.- Sweden krona 69.59

krone
Denmark
Norwaykrone

deutache52.13 Germany
50.4o (west)mark85.61

Belgium franc 7.2o Finland markka 1.55

Yugoslavia dinar 1.lg Malta pound 10o8.Australia ÅíA so6.4o Luxembrug franc 7.20

Fiji lsland pound gog.og Tongalslandspound 806.4o

oo

MASAnlRO FUJITA

Point Four Program have been utilized in the form of E. R. P. andindustrialization of underdeveloped countries, which brought theincreasing dollar investment into these areas. In these international

circumstances, our trade finance has diMculties of pound-surplus anddollar-shortage Moreover, the question of yen rate began to assume
a serious character confronting the Japanese. Though it would bevery diMcult to find an effective counter-measure for the questions,

we present our views as an attempt at a solution:-Besides, on May 11, 1953, the gold parity of Japan

determined by I, M. F.

as followsPure gold part of U.S. $1=:O.88671g

Japan yen1==2.4653mg and U. S. $1=\360
therefore \1==O.27778 U, S. cent
Iraq
dinar
1008.rial
11.16
Iran
India
75.60
rupee
rndonesia
rupiahParaguay'
guaranlBrazilcruzeiro

Honduraslempiras

Boliviaboliviano

60.01
19.48

180.1.89

Syria

pound

164.27

Mexico

peso

41.62

Ceylon

rupee

75.60

BritishTurkeylira

BWI$Pakistan

BritishHonduras$

250.-

Philippines

rupee
peso

128.56108.80210.-

Lebanon
Aden

pound

164.27

Winwardshilling

BWI$ 210.BWI$ 210.-

Cyprus

pound

50.40
1008.-

Singapore

M$
HK$
M$

Hong Kong
Malay
U. S. A.

Venezuela

EcuadorCanadaCuba
Guatemala180.-

117.6063.-

GuianaTrinidadJamaica

Bahamas

pound
pound

Barbados

BWI$
pound

1008.1008.210.1008.-

Irlands

pound

210.-

Netherlands

guilder

190.89117.60

Bermudas360.-$
bolivar107.46

sucre

24.01

FulklandAntiller

Can.$

360rr

Netherlands

peso

3oor

Guiunaguilder

190.89quetzal
colon

360.-

Ethiopia

Eth $

64.11

pound

144.901033.78

Colombiapeso

184.61

Egypt
Union ofEl Solvador

colon
peso

144.00South Africa

ÅíSA1008.-

11.63

Nothern andpeso
cordobabalboa8oor

Southern
Rhodesia

pound

1008.-

Iceland

krona
pound

22.10
1008.13.86
94.75

Costa Rica

Chile

Dominican
Nicaragua

Panama

72.--

3oor

U.K.
Austria
Netherlands

shilling
guiid'

er

THE EXCHANGE CONTROL POLrCY IN POST-WAR JAPAN 91
1. As a exchange in the finance side: Our Big 11 banks hadconcluded corres-contract, with American group 12 banks on April
10, 1949. Later, many other banks has been allowed to conduct
foreign exchange business. But, in their case, each foreign exchangebank was acknowledged to hold foreign currency, free transactionin the field of these activities. The exchange foreign business in
pre-war period differs now from that of the pre-war period. Formerly

the Yokohama Specie Bank had been the only foreign exchangebank, but nowadays there are many and each bank has to establish
connection of transaction for foreign bank. Therefore, we are axious

to establish a newly specialized foreign exchange bank (However,many the overseas branches of city banks may be.).
2. As to dollar and pound question: We hope for the adoptionof the swap system.
3. In addition, completion of the clearing system by prolongationof Japanese-English payment and financial agreements.
4. As our main-customer countries contain almost underdevelop-

ed countries (the South and South Asian countries) especiallysterling area countries and also to be E. P. U. countries, we must ana•

lize the real situation of the foreign exchange with these countries,

E. P. U. system and actual condition of Pound Sterling and settle.

5. Strict maintance of the existing foreign exchange rate (U.
S. $1=\360.). Exchange control, still needs payment and clearing
agreement with mutual understanding. Besides, we maintain gold
policy-- for example, gold control act Aug. 1953.
Assistant of International FinanceKobe Universily

93

ONTHE OFFICIAL STATISTICS OF FOREIGN
TRADE IN THE POST-WAR JAPANBy HIKOJI KATANOINTRODUCTIONPROCEDURES OF FOREIGN TRADE
IIr.
coNSTRUCI'ION OF FOREIGN TRADE STATISTICS
IV. coNSTRUCI'rON OF FOREIGN TRADE INDICESr.

II.

I. INTRODUerION

Eight years have passed since the War closed and the spheresof activity of foreign trade, though in the other spheres of economy
rehabilitation, or its remarkable begining, in different forms fromthose of pre-war era, are being witnessed, and although the shackles

that have strangled the Japanese economy since the war are being
removed gradually the spheres of foreign tade are still placed
within the complicated mechanism with various restrictions. It can
not be denied, therefore, that the various statistics published on theforeign trade under such peculiar circumstances, must include someof the complicated factors that prevail in the post-war Japan. More
important, in this connection, in the effect of the diminution of thestatistical area owing to the loss of a larger half of the territory
as the result of the defect. Even with this limitation, the post-war
figures are of interest----especially those of foreign trade that haveinternational relation, as they can be contrasted with the pre-war
figures and their peculiarity may be discovered.

Here we observe the foreign trade statistics covering the newstatistical area which includes Honshu, Shikoku, KYUshu (including
the Satsunan Islands north of 300 north) and Hokkaido as well as
the islands belonging to those areas. The statistics observed cover
only exports and imports, and do not cover the whole internationalbalance of payments.

94 IIIKOJI KATANO
Our research begins with investigations for processes of collect-

ing the data and publishing the statistics in a sensible form thatthe characteristics of the statistics may be better understood. And
in the following investigations, we concentrate our attention, at first,

onto the practical processes of exports and imports that we may
observe how to compile the statistics through the above-mentioned
processes. Section 2 explains some of the practical trade procedures
related to our object. Section 3 illustrates how to collect the dataand publish the statistics actually covering the foreign trade. Lastly,

Section 4 studies how to adjust these statistics to some more easily

manageable indices.

II. PRocEDURES oF FOREIGN TRADE
1. Pptocedures of ExPort Trade.

By the reform of the export procedures, Dec. 1, 1949, theprocedures were greately relieved of the government control. And
export become free for the most part, the former "Buyer-Supplier
Sales Contract" having been, in principle, abolished.
The export-procedures, under the changed circumstances, are to
be executed in the following order:
Now supposing a Japanese exporter has entered into a contract
with a foreign importer to export some goods. This cantract isrequired to have the prior permission of the Minister of International

Trade and lndustry, if it is for the export of Processing bycommission, or a Compensation Arrangement export (Barter). Withother contracts, the prior permission of the Minister of International

Trade and Industry is, in principle, not required. Again for theexport of the (a) special goods designed by the Cabinet Order(chiefly strategic materials and materials deemed neceessary to retainby the government from the view point of domestic demand andsupply) and for the export (b) of Processing by commission or by
Barter contract and for (c) the export for which the means ofaccount settlement is based on other means than the standard
means decided by the commision regulations of the Foreign Exchange

ON THE OFFCLAL STATISTICS OF FOREIGN TRADE 95
control Board, and (d) for the export of the goods belonging
to a businessman who had been ordered to receive export recognition,

the goods coming under the above description must obtain permission item by item. Otherwise, exports need no government permission as principle.

Then, presenting the complete documents (Export Declaration(5 copys), Letter of Credit (L/C) or Letter of Authority (LIA), thepermitted Contract (if required) the prior permission of the Ministerof International Trade and Industry is required and the licenced
Application for Licence to Export (if the licence of the Minister ofInternational Trade and Industry is required)) to the Foreign
Exchange Bank, the exporter is licenced by the Foreign ExchangeBank on the reverse side of Export Declaration.

This licence procedure by the Foreign Exchange Bank is, inprinciple, taken upon all exports on bill before shipping, but this is

not necessary for (a) a small export amounting to less than 5,OOO
yen (\5,OOO) at FOB prices (if, and only if, the cost of the goods

are payed under the method of standard payment arrangement
determined by the Commission Regulation of the Foreign Exchange
Control Board), (b) an export of samples of merchandise and articles

without compensation amounting to less than 5oo dollars ($5oo)(whether the export without compensation is to be permitted or not

is decided by the Customs House, and (c) exports of a personal
effects of the outgoing personel or emigrant.

The Foreign Exchange Bank shall licence the above-mentioned
Export Declaration, and then should send a copy to the Minister ofInternational Trade and Industry and hand back the remaining 4
copys to the exporter together with LiC and others.
Next the exporter, after drawing up documentary bill, contracting for transport and insurance of the export merchandise, and go
through customs formalities with the Export Declaration licenced by

the Foreign Exchange Board (4 copys) and the Commercial Invoices(3 copys). Then, for the exports amounting to less than \5,OOO at
FOB prices and the exports of samples of merchandise to less than96 HrKOJI KATANO$5oo, the exporter may receive the Customs House's Certificate with
the Export Declaration (applied for at the Custom House) (2 copys).

The Custom House, after confirming the Export Declaration(presented by the exporter) which had been licenced by the Foreign

Exchange Bank and had finished the procedure before it comes to
the Custom House, may permit to export if customs formalities arecomplete in the above-mentioned Declaration and Invoice. Next, theCustom House makes one copy of the Export Certificate from a copyof Export Declaration, and further, confirming the loading after
loading is done, and correcting the 3 copies of Export Declarationby the statements on the certificate according to the above confirmation, holds each copy of Export Declaration and Invoice, send$each copy of Export Declaration to the Minister of Finance and theForeign Exchange Control Board, and gives the Export Certificate
and Invoices (2 copies) back to exporter. If Export Declaration is
confirmed to be not required to be licenced by the Foreign Exchange
Bank, the Customs House, as long as Export Declaration lacks
nothing to go through customs formalities, makes one copy of Export

Declaration into the Export Certificate, and, after confirming theloading when the shipping is finished and correcting the other copies

of Export Declaration by the statements in the statements in theCertificate, restores the Export Certificate to exporter and sends theremaining copy of Export Declaratation to the Minister of Finance.
After the shipping, if the exporter wants to collect the value,
he shall present the means of payment, viz. the Export Declaration
confirmed for shipping (the original of the Export Certificate),

Commercial Invoice and the other Shipping Documents (Invoice forconsigned, Bill of Loading, Insurance policy, etc.), L!C, etc., accord-

ing to the methods of payment stated in the Export Declaration,and shall request the Foreign Exchange Bank to buy or commission

others to collect the exchange. Then the Foreign Exchange Bankdrawing a money order will pay the money in yen to exporter, ina case the Export Bill is bought, or the value of the export
merchandise and articles are collected from the addressee, the Shi-ON THE OFFICIAL STATISTrCS OF FDREIGN TRADE 97
pping Documents are received at the Foreign Exchange Bank (thiscase is of Open account not depending upon LIC or LiA). And
further the Foreign Exchange Bank presents a report as to themethods of payments and the amounts to the Bank of Japan (Agency of the Foreign Exchange Control Board).
2. Procedures of ImPort Trade.

Private imports were permitted to reopen on January 1, 1949,
under the Memorandum for Japanese Government from GHQ, SCAP,
issued on October 21, 1948. Moreover the new import procedures
have been determined by the Cabinet Order and Ministerial Ordinance, which are mainly based on the Foreign Exchange and Foreign
Trade Control Law passed at the Sixth Special Session of the Diet.
Under this newly regulated import procedures, Japanese importis adjusted by the Foreign Exchange Budget decided by the C3binet
Ministers' Conference, which is composed of the Prime Minister (thepresident), the Ministeres of Finance, International Trade and Indus-

try, Agriculture and Forestry, and Transportation (Commissioners),

Director of Economic Concil Baord (Commissioner), and Chairmanof the Foreign Exchange Control Board (Advisory Commissioner).
The trade value of Japanese import is determined by the amountappropriated for the expenditure side of the Foreign Exchange Budget

which is made quartarly according to import areas and commodities.

The Minister of International Trade and Industry, within tbe
limit of the Foreign Exchange Budget, and in accordance with thedecision of the Cabinet Ministers' Conference announces the following items: the list of the goods applied for permission to import(the goods that were not limited in the budget are grouped together•as "miscellaneous ", and their amount in value is disignated, and fora part of this amount a quota of foreign fund is given and for the
rest the endorsement of the Bank), import area, limit of the importvalue, the raito of guaranty, wheter the foreign fund quota is needed
or not, and the designations attached to the announCement of Cabinet
Ministers' Conference, the opening and closing date of Bank applica-

98 HIKOJI KATANO
tion, and other necessary items.

Then, an importer who has negotiations and determination toimport will apply for licence to import to the Foreign ExchangeBank during the time for application according to the importstatement based upon the above-mentioned institutions. The permission of the Minister of International Trade and Industry is, inprinciple, not required; the import can only be licenced after thepermission of the Minister of International Trade and Industry, if it

is of the following special cases:(a) when importer wants to importover the stated import limits, (b) when he wants to import out of
the other areas than the stated areas, and (c) when he wants toimport by other means of payment than the standard payment
arrangement determined by the Foreign Exchange Control Board.
In order to be licenced by the Foreign Exchange Bank after thesatisfying of the above-mentioned conditions, the importer has topresent 5 copies of Application for Licence to Import, and at thesame time, leave the security in the Foreign Exchange Bank. The
value of this security is computed based upon the ratio appointed
for commodities by the Minister of International Trade and Industry
at the time of the announcement. The importer should 1odge security
to guarantee to fulfi11 the import contract; when the import after
the licence of the Foreign Exchange Bank is not completed within
the effective period to import, it is confiscated by the national treasury

within twenty days from the last day of the effective period. In
special cases, however, it is given back to the applicant without
confiscation.

The Foreign Exchange Bank, when they receive the Application
for Licence to Import, must confirm whether the following items
are satisfactory or not ; (a) the import is within the stated items,(b) there is some balance of the Foreign Exchange Budget to theamount of the required value, if the fund in foreign currency isdemanded for that import, (c) the import receives the quota of thefunds in foreign currency, if it requires the quota from the Ministerof International Trade and Industry, (d) the import has received theON THE OFFICIAL STATISTICS OF FOREIGN TRADE 99
permission of the Minster of International Trade and Industry, ifthat is required, (e) securities are deposited to guarantee that import,and (f) payments of freight and insurance premium are payable, ifthey require any foreign currency. When the above-mentioned items
are all satisfied, the Foreign Exchange Bank will endorse of licenceon 5 copys of Application for Licence to Import, and give 2 copys
back to the importer as the Import Certificate (authorized and in
duplicate copys). And for the remaining 3 copys, one copy is kept
in reserve, and the other 2 copys are sent to the Minister ofInternational Trade and Industry and the Foreign Exchange Control
Board respectively. In addition, the effective period of the ImportCertificate of the Foreign Exchange Bank is, in principle, six months

after the delivery of it. Hence the importer must complete theprocedure in the Customs House. This makes long-term contracts
impossible to be entered, but if the exporter presents the application,with senisble reasons, to postpone the period during which hemanages his business, and if it is permittted to be appropriate, hisapplication will be permitted by the Foreign Exchange Bank. Morever, the long-term contract budget system, which came toe ffectwith the Foreign Exchange Budget in Octover to December, 1950,
has relieved the restrictions of the effective period of the Certificate.

When the Import Certificate is issued by the Foreign Exchange
Bank, the importer requires, as is his custom, the Foreign ExchangeBank to establish LiC for him, and then sends it to the foreignexporter. At that time, the importer sends also the duplicate copyof the Import Certificate by the Foreign Exchange Bank, if theforeign exporter requires it.

When the LIC is received in the hands of the foreign exporterand the Documentary Bills are drawn upon after the various
procedures have been gone through, the Foreign Exchange Bank inthat place will buy the Bill or will request others to collect theamounts of the Bill. Then the Foreign Exchange Bank in theexporting port requests, in turn, to collect of the Bill, transportingof the Bill together with the Shipping Documents to the head or1oo HIKOJI KATANO
branch oMce or the correspondent in Japan. Then the Foreign
Exchange Bank requested to collect the Bill in Japan shall report ofthe methods and the amounts to the Bank of Japan as Agency of
the Foreign Exchange Control Board. At same time, if the Bills
are adressed to the Foreign Exchange Bank that L/C, the Foreign
Exchange Bank requires to pay the Bills to the importer for deliveryof the Shipping Documents, or makes a loan on the Shipping
Documents to the importer for a while in place of the Trust Receipt

by himself. If the Bill is adressed to the importer, and if it is abill at sight, he may receive the documents to pay the money atonce at persentation of the Bill for acceptance. Though it be a billat sight, if it is of Documents against acceptance, the complete
Documents are delivered to the importer by acceptance of the Bill ;if it is of Documents against payment, that is delivered to theimporter by payment of the bill, but the importer may make a loanon the Shipping Documents by giving a security to the Foreign
Exchange Bank and presenting the Trust Receipt written that heshall deliver and keep the merchandise and articles imported as aproxy of the Foreign Exchange Bank, when the importer cannot
receive the Shipping Documents until entrance of the vessel, he may
be given the delivery order by the Shipping Company in place of
the Trust Receipt written that he will surely presents the Shipping
Documents to the Company some day. Then the Shipping Company
may require the Foreign Exchange Bank's joint liability with theimporter or the security.

When the vessl enters, the importer presents the above-mentioned

Import Licence Certificate (authorized copy) together with the

Invoice of Exporter to the Custom House. The Custom House
receives them, and, if there is no deficiency in the Invoice and otherdocuments, the Import Licence Certificate may be confirmed at once
for any merchandise and articles on the free list, or after paymentof duties for any customable merchandise and articles. Then theconfirmed Import Licence Certificate is given as the Import Certificate back to the importer. Next the importer indorses theON THE oFFIcrAL sTATIsTrcs oF FoREIGN TRADE 101
Shipping Document (or, as was above-mentioned, presents the Trust
Receipt to receive the delivery order), and, at the same time,presents the Irnport Certificate to take delivery of the merchandise
and articles. At the same time, if the imdort is of the Processing
Deal Contracts, the importer may present Application for Entry ofGoods into Bonded Manufacturing Warehouse to receive the Certificates respetively, and takes delivery of that goods, And then the
Customs House sends these Certificates to the Minister of Finance.
Thus, finally, the procedures of import trade may be finishedwith the payment of the cost according to the contracts with theexporter (remittance or payment of the Import Bill). From thepoint of view of the economic situation at present in Japan, however,the drawing of the bill at sight is impossible, hence importers may
require to draw a dated bill for the payment of its cost as negotiatedwith the exporter, which is different from the case of Japanese
export. For the same purpose, Usance system is carried into effects
in the way that the Bank of Japan purchaces the funds in foreign
currency from the Foreign Exchange Control Board and makes aloan to the Foreign Exchange Bank. The loan period is, in principle,
within 90 days after the period from the day of establishment of
the Import Letter of Credit to the day of arrival of the Import Billand the other documents to Japan, which is supposed as a minimum
necessary period for management of the funds.
III. CoNsTRucrTIoN oF FoREIGN TRADE STATIsl'IcS
Foreign trade statistics in the post-war Japan was constructedwith the documents which were sent to the Minister of Finance or

the Foreign Exchange Control Board from the Foreign ExchangeBank and the Customs House during the processes of the foreign
trade procedures described in the previous section.

Foreign trade statistics in the post-war Japan are composed of
the Statistics of Export Licence by the Foreign Exchange Bank (indollars) and the Statistics of Import Licence by the Foreign Exchange Bank (in dollars) of the Ministry of International Trade and102 HIKOJI KATANO
Industry. The Statistics of Foreign Trade at Customs House (inyen) of the Ministry of Finance, the Statistics of Foreign Trade(in dollars) of the Economic Council Board (generally speaking, thisis constructed from the same materials as that of the Ministry of
Finance's Statistics), and the Statistics of Foreign Trade by Settlement Areas (in dollars) of the Bank oi Japan as an Agent of theForeign Exchange Control Board.
In the first place, let us picture in our mind the flow of the

documents on the course of foreign trade procedures, as was

the Fereign

Shipping
Documents

tthe Ct:storns House,Eschange Bank
'

;fc

.

the CIre

reserve

Exp.

Cert:

bpert
beclarationt.

liPurchaseNN{

Lnvoice

Ttbe CMS reserve{

er-permieslon

Exporte;'s tesc:ve

t

s

sN
s

l

s

N

NN

N

NN

N

N

N. Report otN`j purchase.

l
tbe Mipistrv ot!nternationtt1

IIr

]1

,FECB
the Mtnlstrv ot.

Trade and lndusttv

Figure I.

Finanee(the Bank of Japan) ,ON THE OFFICIAL STATIS DICS OF FOREING TRADE 103
described in the previous section. We have Figure I for export
procedures and Figure II for import procedures. Then, we caneasily understand what documents make up the above-mentioned
statistics. These statistics are further analyzed in detail in thissection of the article.

Shippins Deeurnents
and others(Putchaee)
the ForeigninFi:porter ln

Exchange Bank

Abroad.

Abroad.

:the Foreign EJtchange Bank.

}

the Customs Hou'ee,,

theFEXB.{f.reserve.

ertuportvo(Tmp. Oerti.)tt

Declaratient

Report of theilRequesttoColtecticaNN
theprlorpermisslon

s

N

s

s

N

r'nt----

N h Reper: Of'sArrival,I

IJ

theM{nistryof
rntcrnationalTradeand

y nr

PECB
the Ministty ef Finanee'

redustry'

Figure IL

Ctbe Bank of Japan)

rmperter

104 HIKOJI KATANO
1. Slatistics of the Ministry of International Trade and Indastry.

A. Statistics of Export Licence by the Foreign Exchange Bank.
The statistics has been constructed at the Export Section in
the International Trade Bureau. The materials used are composedof the statements in back of the Export Declaration (the Export
Certificate licenced), which is, as was above-mentioned, licenced by

the Foreign Exchange Bank in reference to L/C or LIA and theother documents sent from the importer in a foreign land prior toapplication to export for the Customs House under the Foreign
Exchange and Foreign Trade Control Law. Hence, in this statistics,

there are contained all the exports that have drawn an exchange,
but all free exchange exports are not contained at all. Although
the exchange needs to be drawn, those figures are not contained, if
it is of a small export amount of less than 5,OOO yen at FOB prices

and its payments are below the methods of standard payment
arrangement determined by the Foreign Exchange Control Board.
The statistics is compiled at the date that the Minister ofInternational Trade and Industry receives the Export Declarationfrom the Foreign Exchange Bank via the Regional Bureau ofInternational Trade and Industry (in Tokyo region, it is sent to the

Minister of International Trade and Industry immediately). And
the statistics are, in principle, summed up to the monthly statistics

at each calendar month. There is, however, an unavoidable time-lag

between the statistical timings in Tokyo region and in the otherregions owing to the necessary time taken by mail.
The statistics is computed at the value of exchange in dollars
Any detailed value by commodity are not presented. And only thevalues by commodity group and by area has been presented.
In the statistics, though there are amended or canceled exports
within those licenced by the Foreign Exchage Bank, they are notobjects of correction in the statistics. The reason is that thestatistics are, strictly speaking, not the report of actual results ofexports, but the indicator of export trend. (A part amended orcanceled may be estimated about 1% to the total value of export.)

bN THE OFFICIAL STATISTICS; OF roREIGN TRADE 105
The statistics are published in the form of decadal and monthly
reports since January of 1950 ; the decadal has been published every

time after ten days since the total summation had been made.
Though this is not strictly real statistics, they are used widely
because of the above-mentioned fact that it is published early.
compared with the Statistics of Foreign Trade in the Customs House,
and therefore an export trend diagnosis may be made early. The
licences to export by the Foreign Exchange Bank take much time
befor shipping in made and exported.
The statistics are, in general, published in the Monthly Bulletinof Statistics of the Ministry of International Trade and Industry.
B. Statistics of Import Licence by the Foreign Exchange Bank.
The statistics have been compiled at the Trade Inspection Sectionin the International Trade Section. The materials used are composedof the statements on the reverse side of the Import Declaration,
which is, as was above-mentioned, licenced by the Foreign ExchangeBank and then sent to the Minister of International Trade andIndustry from the Foreign Exchage Bank. Hence, there is nodifference as to the contents compared with the Statistics of theExport Licence by the Foreign Exchange Bank.
The date of statistical timing is the same as the one in the caseof the Statistics of Export Licence by the Foreign Exchage Bank;
the statistics are computed at the date that the Minister of International Trade and Industry receives the Import Declaration from theForeign Exchange Bank via the Regional Bureau of International
Trade and Industry. And the statistics are also summed up to themonthly statistics for each calendar month. Time-lag of the materials from the Regional Bureau of International Trade and Industry
is unavoidable technically.
The way to express the value in dollars is just like the case of
the Statistics of Export Licence by the Foreign Exchange Bank, but

the classification of materials are more rough (only grouped into
government and private). And, as to the corrections for the imparts
amended or cancelled, there is no difference with the Statistics of1os HIKOJI KATANO
Export Licence by the Forein Exchange Bank.
Moreover, the statistics are not published periodically; it is only
published on the " Tsusansho-koho " or the " Tsusan-koho " irregular-ly. But as to the Statistics of Import Licence by the Foreign
Exchange Bank since Januarry of 1950, there is published on theStatistical Bulletin of Financial Statistics (the "Zaisei-kinyu Tokei

Geppo") of the Ministry of Finance, Vol. 35.
2. Statistics of the Ministry of Finance.

Statistics of Foreign Trade by the Customs House.

The statistics have been constructed at the Research andStatistics Section, Customs Division, Tax Bureau.

The materials used are based on the information contained inthose Export Declaration, Re-shipment Declaration, and other documents (for export) and the information contained in those Import
Declaration, Application for Entry of Goods into Bonded Warehouse,
Application for Entry of Goods into Bonded Manufacturing Warehouse, and other documents (for import) which were fi1ed with theCustoms House and sent to the Research and Statistics Section fromthe Customs House. The correction as to the claime establishedgoods has to be added to the statistics ; then the correction may bebased upon the declarations to re-ship the claime established goods
which are sent to the Research and Statistics Section from theCustoms House.
In the Research and Statistics Section, upon the above-mentioned
materials, statistics of exports are computed on the date of clearance
outwards of the vessels carrying the goods for exportation; for air
freight cargces, it is counted on the date of export licence. Statistics

of imports are computed in the following way; for foreign goods
cleared directly into the domestic commerce, they are computed on
the date of the import licence; for foreign goods entered, before theimport permit is obtained, into a bonded warehouse or a bonded
manufacturing warehouse, they are computed on the date of permission for such entry; and for foreign goods permitted to be

ON THE OFFICIAL STATISTICS OF FORalGN I}RADE 107
delivered into the domestic commerce prior to the issuance of importlicence, they are computed on the date of such permission.
The value for exports is at the FOB prices and that for imports

is at the CIF prices. The unit of value is yen (\). To round off
the figures, a number less than half a unit may be disregarded andanumber more than half but less than one unit be treated as awhole unit.
Goods are classified according to the Statistical Classification ofCommodities for Foreign Trade (Ministry of Finance Notification
No. 1749 of Nobember, 1951), which was compiled, using the United
Nations' "Statistical International Trade Classification", as model
which was brought into effect since April 1, 1951. The goods
included in the statistics for the period from January of 1950 toMarch of 1951 are those as listed in SCAP Memorandum PS 68
September, 1949, concerning the Statistical Classification of Commodities, Imported and Exported. Units of quantity for the itemsof goods are the same with those for the identical items of goods
listed in the above Statistical Classification of Commodities for
Foreign Trade.
Next for the classification by the country, in principle, exports
are classified by the country of destination, and imports by thecountry of manufacture. However, those exports and imports, towhich this principle cannot be applied, are classified according to
the country to which belongs the port of destination or shipping.
(A classified list of the countries and their territories will be inserted

in the Monthly Returns for January, June and December at the ends.)

And as to the released goods from the United Nations Forces inJapan, it is classified according to the countries to which belongthat United Nations Forces.
The statistics issued by the Research and Statistics Section arearranged in order of the earlier publication date, they are as follows :(a) Decadal Returns of the Foreign Trade of Japan and Rapid Reportof the Foreign Trade of Japan, (b) Outlook of the Foreign Tradeof Japan and Monthly Returns of the Foreign Trade of Japan, and108 HrKOJI KATANO(c) Annual Returns of the Foreign Trade of Japan.

(a) Decadal Returns of the Foreign Trade of Japan and Rapid
Report of the Foreign Trade of Japan.
In the Customs House of the Local Branch Othce, the actual
results of foreign trade are summed for three periods (the first, thesecond, and the last decades) for each month subject to the Export
and Import Declarations and the results are reported following theform to the Research and Statistics Section by telephone or telegraph.
In the Research and Statistics Section these results are compiled tomake up the Decadal returns. However, this Decadal Returns havethe significance of quick report, and not classified in details (onlyby main commodity and not by country).
The Decadal Returns are published with ten days lag generally
in each decade. And since September, 1950, the Rapid Report which
is bound together into one volume for three Decadal Returns within
the same month, is published at the same time of publication of theDecadal Returns of the last decade.

(b) Outlook of the Foreign Trade of Japan and Monthly Returnsof the Foreign Trade of Japan.
The Outlook and Monthly Returns are issued compiling thematerials (the Export and Import Declarations and the other documents) sent from the Customs Houses of every Local Branch Ofices
to the Ministry of Finance periodically, The standard compiletionis by the above-mentioned statistical timing, classifications of goods

by commodity and by country, unit of quantity and value. And theobjects counted are composed of domestic products imported, foreign
products re-exported, foreign products impdrted, domestic products
re-imported, re-shipped goods from bonded warehouse or bonded
manufacturing warehouse (the goods that were re-shipped after
processed or manufactured are included in domestic products), foreign

goods entered into the bonded warehouse, and foreign goods enteredinto the bonded manufacturing warehouse. Special statistics arecompiled as to 14 items for exports and 18 items for imports which

include gold coins and gold bullions, current paper money, goods

ON THE OFFICIAL STATISTICS OF FOREIGN TRADE 109
belonging to the chief of a state, his family members, or his
entourage, etc.

These general statistics are issued with those tables which
consist of Exports and Imports by country, Exports by commodity,
principal Imports by country, Exports and Imports by Ships (orAircrafts) Nationality, and Exports and Imports by ports. Moreover,these statistical tables are corrected even after the publication, if

there is added any declarations or documents for claim establishedgoods to the Research and Statistics Section. These effects are
published in the table of accumulated values and quantity, and othertables in the Monthly Returns.

The above-mentioned operations take about two months tocomplete the collection of the materials. Using these date, theResearch and Statistics Section issues the Outlook of the Foreign
Trade of Japan (this is for insiders but published in general) and
the Returns of the Foreign Trade of Japan in more detail than theformer.

The Monthly Returns of the Foreign Trade of Japan has been
re-issued since January, 1950, in the post-war period after it had
been suspended.

(c) Annual Returns of the Foreign Trade of Japan.
The book is constructed by summing up and binding Monthly
Returns together into one volume at the close of each calender yerr,which is composed of PartI"Comrnodity by the country" and Part
II " Country by the commodity " for export and import respectively.

The standards by which it is constructed are the same as theMonthly Returns, but the clasification of goods by commodity are
more in detail.
3. Slatistics of the Economic Council Board.

This statistics had been constructed at the Foreign and Domestic

Commerce Division, ESS, GHQ, SCAP. And after that the work has
been taken over by the Statistics Section of the Research Divisionin the Economic Council Board.

110 HrKOJI KATANO
The sources of data, classification and statistical timing andtabulation are, in general, the same as of the statistics of the Reseachand ' Statistics Section.

The statistics are in dollars. But, because of the fact that thestatistics in former days contain the exports and the imports
compiled under the double exchange rate system, the trade vales inthat days cannot be of same values as those converted to yen at theoMcial rate $1 to \360 ; especially for import, statistical timing isearlier than in the case of the statistics of the Research and Statistics,

and the additional data, which were usable before receiving thedeclarations, such as Receipt for Import, G-4 Report for petroleum,etc., are also used desides general materials. Hence, imprt value
may not be the same with the value converted at the oMcial ratefrom the import value in the statistics of the statistics of the
Research and Statictics Section.
The publication of this statistics is as usual in Japanese Econo-

mic Statistcs, Section II Foreign and Domestic Commerce, but the
publishers are as follows : GHQ for No. 36-68, the Economic Stabiliza-tion Board for No. 68, and the Economic Council Board for No.
70-present.

4. Statistics of the Banle of lapan,

Under these condiditions, most of the imports in the post-war
Japan had been imported with the United States funds and in foreign

currency furnished to us for the export, which had been all under
the GHQ control, and the statistics of foreign exchange had not been
published. However, a part of management of the funds in foreign
currency was transfered to the control of the control of the Forein

Exchange Control Board in November of 1949. And the Foreign
Exchange and Foreign Trade Control Law was promulgated in
December 1, 1949. This Law has been put in force on December
1, 1949, for import control and in January 1, 1950. Consequently,
the funds in foreign currency were made to be bought by the Foreign

Exchange Bank or the Exchange Broker and further to be con-

ON THE OFFICIAL STATISTICS OF FOREIGN TRADE 111
centrated in the Special Account for Foreign Trade. The funds thus
secured were allocated for imports and other purposes via the Foreign

Exchange Budget.
, In the Foreign Exchange Control Department, the Bank of Japanas an Agent of the Foreign Exchange Control Board, the statistics
of foreign exchange had been compiled at each decades in the past,and in September of 1951, the Statistics of Foreign Trade by
Settlement Area had been made to cover the trade up to January,
1950, and the work still continues.

The statistics are based on the information contained in thosereports to buy export bill for export, and the reports of the arrivalof shipping documents to import. And the statistics show amountof foreign trade transaction, the accounts of which were settled bymeans of foreign exchange as summed up at date of purchace or sale,of drafts.

The value of both exports imports is based on the face valueof drafts and in censequence comprises different categories of prices

such as FOB or CIF. And the staistical figures are all in dollars;
the conversion rate adoped for pound sterling into dollars is Åí1 to$2.80 throughout.
In this statistics, the following points should be noticed; (i) as

to the imports according to the GARIOR funds, those which areimportecl at the begining by the settlement of exchange and thenmade up for the foreign currency corresponding to the peyment by
the GARIOR funds, has been counted in general import, (ii) as tothose which have received the payment directly for the supply of
goods to the United Nations Forces (old Occupation Forces), they
have been counted in the export until the end of 19sc, but not socounted as invisible exports and impdrts since January of 1951.
(iii) Finally, as to the procurement demanded through check indollars by the United States Government, it had been assumed asexports until the end of 1950 but it has not bene so counted asexport since January, 1951.
The statisties have been, as was above-mentioned, published since112 HIKOJI KATANOJanuary, 1950.

IV. CoNsTRuorrloN oF FoREIGN TRADE INDrcEs
Side by with the above-mentioned Forign Trade Statistics, theForeign Trade Indices are also computed,
In the post-war period, the Agents that were caluclating theforeign trade indices systematically were only the Economic Council

Board and the Customs Division of the Ministry of Finance.
1. Indices of the Economic Concil Board.

Considering the strong dependence of Japanese Economy upon
the foreign trade, the Economic Council Board has attempted toconstruct the basic indices systematically in order to analyze theeffects of foreign trade upon Japanese Economy.
In the Economic Council Board, the basic materials are collectedfrom the information containd in those Statistics of the Ministry of
Finance (for the pre-war period) and Statistics of the GHQ and theEconomic Council Board (for the post-war period). However, there
is some serious difference, that is, the fact that the former is in yen

and the latter is in dollars, and the worst of it is that there wasa great change in the Japanese territory between the pre-war andthe post-war periods. As to the first point, in order to connect the
pre-war statistics in yen with the post-war statistics in dollars, theEconomic Council Board converts the statistics in yen into the one
in dollars at the average rate of exchange (Yokohama Telegraphic
Transfers) for the period of 1934-36. And as to the second point,
the Economic Council Board adjusts the territory in accordance withthe post-war Japanese territorial expanse as follows: for exports,
former domestic exports (excluding export of Sakhalin) plus importsof Korea (excluding imports of Korea from Formosa) Plus importsof Formosa (xcluding irnports of Formosa from Korea) plus imports
of Sakhalin ; for imports, former domestic imports (excluding imports

of Sakhalin) plus exports of Korea (excluding exports of Korea to

Formosa) plus exports of Formosa (excluding exports of Formosa

ON THE OFFICIAL STATISTICS OF FOREIGN TRADE 113
to Korea) Plus exports of Sakhalin. In the process of this calcula-tions, an adjustment of expdrs and imports of Korea and Formosafromito Sakhalin are incomplete, but this incompleteness are unavoidable because of the lack of materials. (This differences are
negligible except with some special commodities.) And there are
mixed different categories of prices, such as FOB and CIF, but todistinguish between them is very diMcult.
The Economic Council Board calculates the Freign Trade Indicessince January of 19ng, which makes the average value for the periodof 1934-36 as the base. In the first place, the Economic Council
Board choses 199 items (for exports) and 136 items (for imports)
as the commodity to be made the objects of calculation. These
commodities are selected all according to the selection of theStatistical Classification of Commodities for Foreign Trade.

(a) Trade value index.
Trade value index is calculated as follows, for both complex
index and individual index;i"='l'Il-il]tQQ:'

Iv: trade value index,

P: unit price,
Q: quantity,
T: time compared,
O: time based.

(b) Unit price index.
Unit price index is calculated as follows, for both complex index
and individual index;that is, the base of the pre-war index (193436) is linked by means of Fisher's formula to the base of the postwar index (1949 base for 1948, 1950 base for since 1949), which is

calculated by Laspeyres formula. Unit price was computed indollars.

ip -i;;l Q,l l/iiiP.i g: lli;i g: •Ip:unit price index,

114 HIKOJI KATANO
I: tirne based in the post-war period,
O: time based in the pre-war period.

Jn the other words, this unit value index may be made by multiplying the ratio of the unit price at the time based in the post-war
period to the average unit price at 1934-36 onto the unit value index
based at the basic time in the post-war perod;this ratio is calculatedwith a help of Fisher's formula using weights in the pre-war andthe past-war periods relating to 199 items for exports and 136 items

for imports. And unit value index based on the basic time in the
post-war period is calculated with a constant weight relating to thevalues of exports and imports during the basic year.

(c) Quantity index.
The indexization as to quantity in itself is not done; there isdivided trade value index by unit price index;
Iq =Iv
7,-'
Iq: quantity index.

This operation is the same as in the cases of both complax index
and individual lndex.

(d) Terms of trade index.
This is calculated by dividing export unit price index by imprt
unit price index,
IT=::IL,pami'

IT: terms of trade index,
Ipe:export unit price index,
Ip•t :import unit price index.

This operation is also the same as in the case of both complex index
and individual index.

It follows that the foreign trade indices by the Economic
Council Board have the condition that quantity is an indispensable
element for calculation of unit price lndex (hence, the items without
quantity cannot be taken), and that there is some ratio which makes
possible to convert the difference in measuring unit for the pesioc
between the pre-war and the post-war periods. Accordingly, theseON THE OFFICrAL STATISTICS OF F()REIGN TERADE 115
conditions restrict the calcultion of the foreign trade indices of the

Economic Council Board,
2. Indices of the Ministry Finance.

The Ministry of Finance has been trying with almost the same
objects as the Economic Council Board, but they have concentrated
their attention into the trend of the prices in foreign trade.

The materials used to make these indices are based on theinformation contained in the Statistics of Foreign Trade, which areconstructed by the Research and Statistics Section of the Ministryof Finance. Compared with the Statistics in dollars of the Economic
Council Board, there may be a considerable difference between them,for the period before the establishment of oMcial rate in the Springof 1949.

/ possible to calculate these indices are' The bases which makequantity, trade value and unit price (this unit price is obtained by
dividing trade value by quantity) which are calculated by averaging

the total sum for 1950. (And this base was of 1948 in the past,
but now this has come to be of the above-mentioned data, since1950 is suppdsed as an appropriate year when Japanese Economy
had reached to a geneJally stable situation,) (Unit price index iscalled price index in the case of complex index.) Those items forwhich base year cannot be taken the monthly average of the year
to be compared to may be taken.
Next, the items used to construct this index are chosen of theselected items as to constitute 90% for exports and 87% for imports.
This revision had been done according to the adoption of the new
Statistical Classification of Commodities for Foreign Trade subjects
by the advice of the United Nation in April, 1951, just when therevision had been felt urgent. (For the period before that time, there
had been 453 items for exports and 183 items for imports respectively,

but the choice was not' suitable at that time because of theconspicious change of economic situations in Japan.)

The Ministry of Finance has calculated a complex index and an

116 HIKOJI KATANO
individual index using the 'above-mentioned materials; they havecalculated quantity index, trade value index and unit price index in
an individual index, and quantity index and price index in a complex
index.

(a) Individual index.
Because of the fact that quantity for the individual items in thestatististics of the Ministry of Finance, is shown to be possible
to calculate trade value index, quantity index and unit price index
directly. Hence, there is no quesion for the calculation.
It must be noticed that this unit price index is the one constructedfrom the most detailed items, in the Statistical Classification ofCDmmodities for Foreign Trade and the indices which are synthesizedfrom the former indices may be treated as complex indices.

(b) Complex index.
,Trade value index offers no quesion to be investigated. Priceindices are calculated by the Edgeworth's formula, and quantity
indices are obtained by dividing trade index by quantity index. That
is;Ep, Q,
I" =2po Qo'
2Pt (Qo +Qt)

IP =2LPo (Qo +Qt )'Jq :'=i;M'Iv: trade value index,

P: unit price,
Q: quantity,
Ip:unit price index,
Iq: quantityindex,

o: time based,t : time compared.
As to the procedure to synthesize the calculation of price index,

the covering method may be used. This method can indicate theitems from the least classification to the medium and the largest inorder, To synthesize the index from the sub-indices, a ratio between

ON THE OFFICIAL STATISTICS OF FOREIGN TRADE 117
the total values of separate items may be used as a weight. Using
this method, when the synthesis as to prices is taken in accordancewith the subclassified items, the synthesis becomes possible with anaid of the weight composed of the total sum of value including"misellaneous", if there is a miscellaneous item and lacks thequantity for the item.

However, when the synthesis for quantity is taken, the synthesis
is possible, since the total sum of quantity inclcuding "miscellaneous" item must not be taken, Therefore, as to the quantity
index, this may be calculated by dividing trade value index of theitems by complex price index for sub-classified items. Hence, as tothose which must be calculated by the covering method and containsome miscellaneous items in the sub-classified items, quanty index
cannot be obtained by using the Edgeworth's formula. In the formerdays, quantity index had used, in principle, Edgeworth's formula,but now that is obtained by dividing the trade value index by priceindex.

This complex index has been issued by commodity and by groupfor exports and imports respectively. The index by commodity has,in general, the same form as the Statistical Classification of Commodities for Foreign Trade, though it is readjusted. And the index
by group is synthesized to the groups corresponding to the mostrough items of the statistical Classification of Commodities for
Foreign Trade. The index by group is calculated in the same way
as in the case of the complex by commodity.

Assistant of Foreign

Kabe Universily

Trade

119

ON BUSINESS HISTORY
By TADAKATsu INOUE
Among the works that trace the general historical developmentof business or business units in various successive stages, we aremost interested in N. S. B. Gras' Business and CaPitalism: An
Introduction to Basiness History (1939), J. L6ffelholz's Geschichte derBetriebswirtschaft und Betriebswirtschaftslehre (1935), and Felden-

ZakrZewski's Betriebswirtschaft, ihre Geschichte (Handw6rterbuch
der Betriebswirtschaft. 1926). The first represents the study ofbusiness history in the United States, and the other two that inGermany. These works well indicate what business history is, thatis, its subject, objective, and the technique that the study engages.

1
The business history which has been developed by N. S. B. Gras
and his co-workers since late 1920's is primarily the study of theadministration of business units in the past. Business history, thus

defined, may be divided into four categories: (1) the businesshistory of individual business units; (2) the business history of anindustry, which presents a generalized picture of the administrationof the business units which make up the industry ; (3) the businesshistory that treats the general historical development of businessadministration ; and (4) the business history that studies the various
aspects of the development of the functional divisions of businessadministration. Gras' Business and CaPitalism belongs to the third

category of business history. The following is the synopsis thatcovers its major phases.

1. The author traces the development of capitalism in its
various stages. "Capitalism," thus defined, means "a system ofgetting a living through the use of capital," or "a system which
combines (a) capital (goods only at first, but later capital fund120 TADAKATSU INOUE
also) and (b) management of capital." In other words, there are
two processes that must continue side by side---the flow and useof capital, which in turn we may regard as investment and administration. H.M. Larson's Guide to Business History (1948) characterizes this concept of capitalism as the administrator concept ofcapitalism. Indeed, Gras' Business and Capitalsm is the first work
presenting business history under the name of capitalism because
the author's concept of capitalism regards administration as the key
factor in the system of capitalism.

2. According to the changes in the type of fiow and use ofcapital and in their interrelation, Gras divides the history of capita-

lism into stages as follows:

Dualism in the Evolution of Capitalism

Use of capital Flow of capital(business administration) (investment)

A. Pre-business capitalism A. Private capitala. Collectional economy a. Usucapitalb. Cultural nomadic economyc. Settled village economy
B. Private business capitalisma, Petty capitalism b. Direct putting-out
b, Mercantile capitalisrn

c. Indirect putting-out: passivec. Industrial capitalism

d. Financial capitalism d. Indirect putting out:active
e. National capitalism B. Public capital: supplementing private capital
C. Public business capitalism

Communistic capitalism C. Public capita1: supplanting private capital

The author gives chief attention to the systems of private business capitalism.
3. Pre-business capitalism. The use of capital: this system ofcapitalism existed before businss came upon the scene. " Business,"thus defined, means "the administration of labor and natural resources, in partnership with capital, in a process which leads tothe sale of goods or services," or "the administration that looks
towards exchange." The flow of capital : the usucapital system was
the only source of capital. Capita1 had to be used by its possessor

ON BUSINESS HIsroRy: 121
in order to yield an income.

4. Business capitalism. When business enters the system ofcapitalism, business capitalism is born, There are two principal
types: private business and public business capitalism. Private
business expects a profit for its service; public business pretends
to offer a service without profits.

5. Petty capitalism. The use of capital: the administrationof petty capitalists was never controlled by any other business men.

Petty capitalists wanted no control except that of the regulation
among the equals in gilds or associations. The flow of capital:the

direct putting-out system was introduced. But the usucapitalsystem was still the main source of capital.

6. Mercantile capitalism. The use of capital: the sedentary
merchant, who was the dominant figure in this system, diversified
his risks by integrating his functions; and he infiuenced or controlled other businessmen's administration through his agents andjunior partners, he himself staying at home. The fiow of capital:
the usucapital system was used, the direct putting-out system expanded and the indirect putting-out system created.
7. Industrial capitalism. The use of capital: the first phaseof industrial capitalism was to emphasize production; the second
phase was the problem of selling the goods or services at a satisfactory price; and the third phase was concerned with the inside
financial strength that involved the turning away from the chiefpolicy of industrial capitalists operating on the basis of a highdegree of specialization. The flow of capital : the usucapital, direct

putting-out, and indirect putting-out systems were tapped but thesecond and the third predominated. However, throughout industrial
capitalism, money middlemen have been passive in their relations
to their clients.

8. Financial capitalism. The flow of capital:the indirect putting-out system changed from passive to active investment. The
use of capital: active investment involved continued control on thepart of the money middlemen. Under this control, integration and122 TADAKATSU rNOUE
diversification were carried out in a relatively short time.

9. National capitalism is a regime of the use by the national
government of its power to control the flow and, to some extent,
the use of capital.

2
As a specialized field of historical research and study, businesshistory as conceived by Professor Gras is not yet established inGermany. However, this dces not mean that there is no historical

study of business or business unit in Germany. Among German
studies which present the history of business or business units follo-wing up various stages, we may refer to J. L6ffelholz's Geschichte
der Betriebswirtschaft und Betriebswirtschaftslehre and Felden-Zakrzewski's Betriebswirtschafl, ihre Geschichte.

A
J. L6ffelholz, a renowned business economist, finds the mostimportant objective of business economics in cost problems, andin turn, cost problems define the objective of business economics.
As the objective of business economics, the concept of busines$ unit,

therefore, means "ein Arbeitsorganismus zur Gtitererzeugung, bei
dem Kosten entstehen."
Putting emphasis on cost problems, the author traces the courseof business units in the period from ancient times to the early nine-

teenth century.
Firstly, cost is either inside or inside and outside concept. The

former is appliedto economically isolated business units where
goods are consumed by the producers. Cost had to arise only
inside the business units. "Hauswirtschaftsbetrieb" in the regimeof precapitalism typically belongs to this type. On the contrary,
the latter is applicable to such business units that stand in a systemof production for exchange.
Secondly, cost is either qualitative or quantitative in its expre-

ssion. When the quantitative measure for calculation lacks, cost

123

ON BUSINESS HrSroRY

has to be expressed qualitatively, Only when number and money
came into being, cost began to be expressed quantitatively. It was
not until Renaissance that the quantitative measurement of costs
came to prevail. In the pre-capitalistic era, the cost calculation in
bnsiness units was qualitative.

Thirdly, cost is either stationary or dynamic in its structure.
The former had its place in the business units in the pre-capitalistic
era when production was guided by the principle of the maintenanceof living. The latter arose in the business units in the capitalistic
era when production looked towards profits.

B
According to the changes in the type of spirit, order, andtechnique and in their interrelation, Felden-Zakrzewski divides thehistory of business units as follows:
DerGeistA.DieIdeedes
eigenwirtschaftlichen
Betriebes

1.Bedarfsde-

DieTechnik
1.empirischckungsprinzip
2.Traditionalis-mus

DieOrdnung
1.Gemeinwirtschaft

2.stationstr

2.gebundene

3.anorganisch3.Gemeinschaft

Organisation

4.Bedarfsdeckungswirtschaft

B.DieIdeedes
Handwerks-

1.Bedarfsde-

1.empirisch1.Privatwirtschaft

ckungsprinzip

betriebes

2.Traditionalis-mus2.stationtir

2.gebundene

3.anorganisch3.Gemeinschaft

Organisation
4.Verkehrswirt-•
schaftC.DieIdeedes
kapitalisti-

1.Erwerbsprin.ZIP

1.wissenschaftlich

1.Privatwirtschaft

schen
Betriebes

2.Rationalismus

2.revolutiontir

2.freieOrgani-3.organisch3.Gesellschaft

sation4.Verkehrswirtschft

Undoubtedly, W. Sombart's Die Ordnung des VVirtschaftslebens

124 TADAKATSU INOUE
had a strong influence on this division.

3
The economic and industrial conditions in the United StateS
have come to require business administrators who are qble toscientifically meet the changed situation. This, coupled with thephilosophy of pragmatism, encouraged the study of business administration which finds its objective in the direction of the administration of business units.

Along with the above trend, the United States gave birth tothe study of business history. In 1927, the Straus Professorship ofBusiness History was established at Harvard University by W. B.
Donham who proposed that business history should be taught tomeet the need of businesscircles to obtain vicariously the long apd
broad experience attained by actual business life in old days, andthe newly created chair was fi11ed by Professor N. S. B. Gras.
Thus the nature of the study of business history was determinedin the United States as history of the administration of business
units. Gras' Business and Capitalism is therefore the first book of
its kind that traces the general historical development of theadministration of business units in its successive stages. It regards

business administration ---policy, control and management as
key factors in the dynamic world, and desctibes the systems ofprivate business capitanalism petty, mercantile, industrial, financial, and national.

As a study of the administration of business units in the past,Gras' business history serves us as a guide in the study of theconcept of business history. However, it may be premature to
regard Gras' business history as the only type of business history,

Should business history be studied as the only text for training
men engaged in present-day business administration? Should business history be limited its objective only to the past administrationof the business units? In order to solve this question we shallhave to refer to Geshichte der Betriebswirtschaft und Betriebswirt-

ON BUSINESS HISTORY 125
sclzaftslehre and Betriebswirtschaft, ihre Geschichte which were
written in Germany

As mentioned above, J.L6ffelholz traces the development ofbusiness units by emphasizing the cost problems of business units
in the past, and Felden-Zakrzewski divides the history of business
units into three stages according to the changes in the types ofspirit, order, and technique of business unit, However, furthur
examination of the German works will make it clear that they also
take due interest in examining historically the structure of business

units in the past. The German writers take up the problems ofeither cost or sprit, order and technique because the writers thinkthey will explain the structure of business unit in the past, andnot because to learn the technique of the past administraion ofbusiness unitf. Unlike the study of the history of business administration as conceived by N, S. B. Gras, these German studies
may be characterized as a study of the history of the structure ofbusiness units. As yet the study of the history of business orbusiness units is not well established in Germany as an independent

field of academic interest, but in view of the nature of these twoworks it is not hard to surmise to which direction the German
study would tend. (In this connection, we may refer to a historical
study of the structure of business units contributed by Professor
S. Kurita's Social Stmcture of Basiness Units to the Review of theKobe University of Commerce, 1949. According to the changes ofsocial structure in business unit, the writer divides the history ofbusiness unit into three stages: Betriebsgemeinschaft, Betriebsgesellschaft and Betriebsk6rperschaft.)

We have now learned that so far there are two principal typesof historical study: the study of the administration of business
units, and the study of the structure of business units, What we

now propose to write in the next thesis is "what is BusinessHistory; especially its objective?"
Assistant Professor of Business Histery

Kobe Universitpt

127

PROBLEMS OF REGIONAL INDUSTRIALIZATIONIN JAPAN
By MINoRu BEIKA
I
As one of the programs to accomplish the economic independenceof our country, the "Unified Nation-wide Development Plan" hasbeen taken up both by the central and local governments, and a
portion of the plan has been already legistlated in 1950, Regional
industrialization constitutes a part, or rather a principal problemof this plan.

It is commonly acknowledged today, that our Development Plan
is to follow the pattern set by the T.V.A. plan in the U.S.A.
Moreover, our critics point out that our regional plans should learn

from the actual experience of the Special Areas Act of 1934 andthe Town and Country Planning Act of 1947 in Great Britain, which
aim at the development of the depressed areas. Still more, our local

communities are eager to attract industrial plants to their community, referring to foreign experiences.
It is quite desirable that our nation-wide development or regional

industrialization should follow the patterns in Europe and America,
or better still, not to fall into mere imitation, but, keeping in mind

our special national circumstances, to strike out a new move in theright direction. But we doubt that, so far as the problem of regional
industrialization is concerned, those who are responsible for the
problem do realize the diMculty of realization and know where theproblem really lies. For regional industrialization to be realized,

general advance of economy and industry must be had, but at thesame time, the insuMcient investigation of the locational conditions

and suitability constitutes one of the factors that makes the rea-128 MINORU BEIKA
lization impossible.

We have no space here to describe at large about our 1ocation
theory of the industry. In short, the iocational problems should beconsidered related to the industrial character of the locality and thelocational feature of the industry. The former, the industrial
character of the locality is related to the distance to and from, andspecific physical features, affecting the cost of transport and pro-cessing. It may give rise to the land use competition and it may
limit relatively the location's usefulness for industrial plants. That

is to say, each locality has the industrial potentiality for the
existence of a plant. The latter, the industry has not only relations
to the location factors externally, but also internally to the businessfeature for its location. Accordingly, for the industry, it is notalways important to select the most favorable location, but to adjust
the selection by the locational adaptability of the industrial plant.

From this locational point of view, we must, on the one hand,be guided in our research of regional industrialization, by theindustrial character of the locality, or by the locational specialitiesof our country. On the other hand, the business feature relating toindustrial location.

IIIn our study of the subject of regional industrialization, we
propose, in the first place, to consider the industrial character ofthe locality, or of our country. The results of the industrial research,necessarily refiect, more or less, the actual conditions and special
features of the economy and industry of the country, which constitutethe prerequisites of the whole problem. Particularly, it is not to be
wondered at that the locational problems, as relating to spatialness,reflect their influence more conspicuously on the result. We must
keep in mind the above-stated connection, because we give weighty
consideration to, and seek guidance from, in many cases, actual
results carried on in foreign countries, especially in Great Britain
and in the United States of America. In Qur study of the regional

PROBLEMS OF REGrONAL INDUSTRIALIZATION IN JAPAN 129
industrialization, we have to consider their respective backgrounds

and their mutual relations, and discriminate the general from thespecial. In this sense, comparative study of foreign facts throwmuch light on the locational specialities for industries in our country.

(1) The cases in the U. S. A.
In the U.S.A., general regional developments, as the T.V.A.
plan, have achieved success in the last twenty years; and also by
the later half of this century, industrial areas have tended more or
less, to be dispersed, by the endeavor to attract new industrial plants

to local communities. I have no space here to discuss the locational

problems of the U.S. A., but at least we must remember that they
have their own special features for regional industrialization, quite
different from ours.

Firstly, most of the industrial production in that country, orabove ninety percent of it, is produced for the domestic highpurchasing power, which has resulted in the construction of many

new industrial plants on several new regions. The Americanindustries, therefore, have wide range of location to select as theirsite of plant that belong to the so-called market-oriented industries.

This is evidently the case, that a number of new plants have beenfounded 'in the South after the 2nd World War. These conditions
are quite different from those in our country, which will be describedlater.

Secondly, as the country still has much of undeveloped andunutilized resources all over the land, so her industries tend todisperse quite easily. Now that the industries, it is true, have sohighly developed, the former major locational factor as the availability of raw materials is nOt so important an attraction as theavailability of gQod markets. Nevertheless, the location factor ofavailable resources contributes some service to the regional industrialization practically.

Thirdly, we-L must keep in mind the specialities of the industrial

and commercial features in that country. American industries

130 MINORU BEIKA

depend on high machine methods, standardization, and rational
marketing system, adapting the manufacturing procedure to meetthe requirements. Great national and international enterprises have
expanded enormousiy upon these conditions. Their regional industrialization, too, is influenced by these specialities. On the contrary,

our industries are very far from being mechanized and standardized,

and are encumbered by the complicated industrial and commercial
features of a number of middle and small scale businesses.
Fourthly, as the U.S. A. has an extensive territory, or 20 times
as large as our country, the locational problems for manufacturingindustries in the former, have very different scope from that of thelatter. For example, the Tennessee Valley area for the generaldevelopment plan, is neariy the same as that of all Japan. Hence,
although each is called "general" plan, each has different natureand scope respectively. Truly it may be taken as a progress thatour "unified general" plan combines the mountain and river improvement, electric power development, agricultural cultivaton, andregional industrialization in certain districts. But if the plan adheresto the so-called "unified general" plan only in a limited area, it
could not accomplish the purpose because of the adverse effect ofblock economy for that district, because our country has but
narrow territory to start with, For instance, our electric power
development can not always be considered in connection with theregional industrialization of a certain district, and sometimes it is

not even wise to do so.
Thus the 1ocational features of the American industries are so
different from ours as was described above.

(2) The Case in Great B"'tain
Great Britain seems to be similar to our country in certain
conditions, because its territory is only two-thirds as large as ours,

and is dependent highly on the exporting trade just like Japan.
But British policies for depressed areas, or regional industrialization,

may serve no more than those of the United States. And if one

PROBLEMS OF REGIONAL INDUSTRIALIZATION IN JAPAN 131
thoroughly understands the British locational specialities for in-

dustries, one may realize that there exists as great a difference
between Japan and Great Britain as there is between Japan and theU. S. A.

In Great Britain, most industries, viz. cotton, woollen andworsted, coal, iron and steel, and shipbuilding, have been developed

during the 19th century since Industrial Revolution, and theyoccupied the superior position in world markets, During this period,

each one of these substantial industries has been concentrated inhigh degree to a certain district, and they have grown to theso-called "Localized Industries." Since the lst World War, theseold conditions have changed somewhat. Yet " Localized Industries "seems to us to be still one of the British industrial peculiarities.

The causes of her "Localized Industries" may be due toindustrial conditions in the medieval age, regional distribution ofcoal and iron ore, and the historical transitions since Industrial
Revolution, but we can not trace these in detail here. At any rate,
such a specia! feature as Localized Industries has characterized theindustrial and economic problems in Great Britain, and affected her
economic policies.
For this locational specialization of industries, Great Britain

had to depend on "external economies" as expressed by Alfred
Marshall, and also had to highly specialize the industry horizontallyand vertically, that is, by classes, varieties, and processes. Formerly,

this specialization brought about the extraodinary development ofindustries in Great Britain, but it has beeh responsible for thepresent diMcult situation by retarding their modernization, owing
to the adherence to tradition and fossilized succession. Furthermore,in Great Britain, characterized by the 1ocalized industries, the riseand fall of certain classes of industries directly bring about thevicissitudes of certain related districts, and these districts can noteasily shift from one industry to another on account of thesecharacteristics, and the seriousness of unemployment may follow
from this incident. Old industries of the 19th century are losing

132 MINORU BEIKA,
their prosperity and the new industries of the 20th have not sodeveloped as to cover the losses causecl by the depression in theformer, which forced the British government to solve these problemsby the regional policies as the Special Areas Act or the Country

and Town Planning Act.
As is mentioned above, the problem of regional industrializationin Great Britain are different from the one in our country, because

the former has had a certain localized industry in most districts
from former times. It is, therefore, natural that the study oflocation theory in Great Britain had chiefiy to be concentrated on
the relations between locations and the size of business enterprises
or business plants, different from those in America and Germany.

4ccordingly, in the research for our development problems or
regional industrialization, we must grasp the specialities of these
foreign countries.

III
Different from the U.S.A. and Great Britain, our country's
industries have been characterized by importing raw materials andexporting manufacturing products; for Japan has less industrial
resources and smaller home markets. Generally speaking, industrial
plants are to be located in close proximity to raw materials, or toconsuming markets, and only in special circumstances, to be locatedon other locations. Industries depending on raw materials fromabroad and foreign markets for products, naturally tend to beconcentrated to a few central trading districts including trade ports,

where, so to speak, there are raw materials and consuming centers.
These are clear specialities of our industrial location, and thefollowing description specifies these characteristics:Firstly, far more industrial activities have concentrated on

Keihin (Tokyo and Yokohama), Hanshin (Osaka and Kobe), andChukyo (Nagoya) districts, In the following table, we see that inthese three districts 410/o of the employees in our manufacturing-industries are concentrated, and 609o of the metallurgical andPROBLEMS OF REGIONAL INDVSTRIALIZATION IN JAPAN 133
engineering workers, 350/6 in the textile workers, 26e/o of the chemical

workers, and 37% of the workers in the other industries. The realindustrial activities fall more to the hands of those workers in these

districts than these statistics show. In short, many classes of ourindustries have concentrated on a few districts accumulatively.
Industrial Employees of Three Central Districtg(July 1, 1951)
Metallur-gical&

Industries

Whole

Tokyo

yees

Empol-•%-10

666,844 100 1,528,325

5,504,607 100 1,632,963 100 1,287,629 100

739,130 13 322,122 20

80,6106

55,266 14

52,4178

228,715 15i42,osl-t9

15,734

1

15,6904

18,654

3

28,9932

125,3878

166,887 13

13,1203

37,981

6

103,1917

232,997 14

132,722 10

37,278 1031,732

5

118,2698

141,829

59,303

19,81927,543

4

73,8605

Aichi

446,566

Osaka

552,998

Hyogo

322,354

fivePrefs.

EmploEmploEmplo% Employees % yees % yees % yees % yees
1388,846ilOO

Kanagawa 221,152

Totalof

OthersDrink

ing

EmploCountry

Food&

ChemicalTextileEngineer-

Prefecture

4
8.m10

6

9

5

5
--tttttt

41%

60.o/.

35%

36%

26%

Establishment Census of 1951

Secondly, these concentrations with many classes of industries
accumulated in a few districts, have naturally brought about thespheres of industrial classes owing to the land-use-competition,
Our late research indicated the ratios of different industrial spheres
fairly clearly. In short, coastal regions are used largely by metallur-

gical and engineering industry, especially large scale plants ofprimary processes and some of the finishing stages (shipbuilding androlling stock); and in the next surrounding regions, there are not
only many medium and small scale plants of secondary or still lower
grade processes in the same industries, but also textile, chemical andfood industries exist in the same region. The suburban industrial

districts circling these centers, have been characterized by many
plants of the intermediate producing processes in the metallurgicaland engineering industry. The urban and suburban industrial

37.e/e134 MINORU BEIKA
districts have little textile industry but its finishing processes;

printing, dyeing, sewing, clothes making, etc. The spinning andweaving plants are chiefiy 1ocated outside of these central andsuburban districts.

Thirdly, these highly accumulated concentrations of many classes of industries have broght about the high degree division of theindustries. Especially, in our country, owing to the special historic

processes of our industrial development and our characteristic
economic structure, these concentrated industries have made themselves into the still more complicated industrial organizations, whichhave horizontal and vertical relations among these large enterprises,

and these and the smaller scale businesses, technically, merchandizingly and financially.

Accordingly, we have the locational specialities related to suchcomplicated business features that each business has to depend onthese structures.
Ernployees in Three Industrial Districts by Size ofMannfaÅëturing Establishments(July 1, 1951)
Prefecture

TotalNumberofManufacturimg

ManufacturipgEstabl"hments

Establishments&Employees

havingabove1,OooEmpleyces

Establishrnents

Employees

Establish-ments

Employees %WholeCountry

495,332

5,504,607

404

944,425

17

Tokyo

62,946739,130

36

69,6729

Aichi

37,694

446,566

35

73,655

16

Osaka

35,519552,99838

69,607

13

136,159

1,738,694

109

212,94412

Totalof3Prefs.

Establishment Census of 1951

By the figures shown above, while, in the whole country, theindustrial employees of the plants employing above 1,OOO, occupy
17% of the total employees, in the three districts the percentage isonly 12% of the total. Here we see a special feature of our country.
Fourthly, for reaons of these conditions, the local industries of

PROBLEMS OF REGIONAL tNbtJSI}RrALIZA tiION IN jAPAN 13g
our country, excepting chemical industries, etc., consisted of many
localized industries of small scale businesses which have developedin our rural districts, from the old handicraft industries, or as theexporting trade at the time of the Ist World War. Only in thispoint, we have in a smaller scale, a simillar feature of the localized

industry in Great Britain.
Now we showed that our specialities of the locational industrial

features are different from those in Great Britain and the U.S,A.
Therefore, our regional industrialization must aim at the development of the already localized industries, or promote the extensive
development of the centralized industrial districts to encroach upon
the suburban and further outskirts. Under these conditions, we mustsay that our aim is not easy to attain.

IV
Now, we will study the business features related to the 1ocation.

As industrial plants depend on several factors for existence, the1ocation factor is only one of them, and the plants have to adapt
themselves to the changing conditions inside and outside of enterprises. Therefore, the problem of plant 1ocation is not always toselect the most suitable site, but to consider its locational aclaptability

or its elasticity. There are many industries that have varying
scope of elasticity for the locational restriction, from the narrowest

to widest. The narrowest may be said to have a distinct 1ocationalfeature, and the widest relatively free from the 1ocational restriction.

These less restricted industries by 1ocation factors, may select the

1ocation purely in consideration of the relatiQn to their businessfeatures or business policy.
Accordingly, to attain the reglonal industrialization, it is desirable to attract to a locatity industrial plants which have distinct
locational characteristics, by indicating the industrial potentialityof certain 1ocalities, and also the comparatively large locationalelasticity, to develop the industries, in line with their businessfeatures or policy.

136 MrNoRu BErKA
Nevertheless, the regional industrialization policies in our coun-

try have tended to attach much impartance to the former, or toindustrial potentiality of the 1ocality which to us seem to be lessimportant. It is truly important for us to endeavor to develop theunutilized resources, or to create the suitable conditions for plant
location. But since our country has little natural potentiality forindustrial development, except water power and a few others, itwould be very dithcult to accomplish much in this direction in
the excessively competitive industrial world, by adopting these policy

to utilize special factors. We should not waste our capital or
valuable materials by adopting the less-suitable policy.

Therefore, we must pay attention to the other direction fordevelopment, which is to utilize the industries with larger locationalelasticity. Generally, since light industries have been developed inmany back-ward countries, our development, restricted by the lackof resources, should hav aimed at fostering such intensive industries

as to increase added value by manufacturing products. Although
this idea of increasing added value by manufacturing products is
not always coincident with the one of large locational elasticity ofindustries, but both are compatible with each other in manyindustries. Hence, it seems most applicable to our country to attainregional industrialization in this direction and following that policy.

Especially, we find that with high degree industrial development,complication and specialization many kinds of processings andvarieties of products have come to develop, and to-day the productionin the specialized branch of a process or of specialized varietiesof products have come, in many cases, to be concentrated under
one management or in one plant. Yet this is not limited to big
enterprises or manufacturing plants, but often medium or small
scale ones do the same. The cause is not only traceable to limited

foreign markets and small purchasing power in home markets, butalso to one of the characteristic business features, caused by thepresent industrial structure. These industrial plants as the objects

for regional industrization must have good equipments with special

PROBLEMS OF REGIONAL INDUSTRIALIZATION IN JAPAN 137
technics, or close connections with good markets.

In short, our regional industrialization has adhered too muchto the geographical locality or special locational features, and has
paid little consideration on the business features that may develop
in future. Therefore, we should solve our probiem by connecting
regional industrialization with the intensive industries of increasing

added value of the manufacturing products.

v
Summary :(1) In our study of plant location, when we give weighty
consideration to the results of the researches carried on in Europeanand American countries, we should pay attention to each of theirvarious specialities.

(2) Since most industries in our country are concentrated
accumulatively to a few districts and had special business featuresthat belong to that phenomenon, it is diMcult, for the time being,
to attain the regional industrialization. Therefore, we may be forced
only to expect the gradual but extending development of the central
industrial areas.

(3) Or rather, we might go forward the way to develop the
1ocalized industries which had taken shape in the region, by compl-

eting the industrial and commercial organization(4) Although it is desirable for us to endeavor for regional
industrialization, to develop the unutilized resources, or to create
the suitable conditions for plant location, it would be very diMcult

to expect accomplish much or survive through the competitive
industrial world by these policies alone. we should not lavish or
waste away our capital and materials.
(5) Therefore, we must pay attention to the other directionthat regional industrialization may be completed by developing theintensive industries that increase the value of manufactured products.

In other words, we should not adhere too exclusively to the geographical locality, but consider the business feature that may develop

1ss MrNoRu BEIIeA
thera }ts direction may be often disoovered in the industries withlarge locatioma1 elasticity which must of course be accompanied

by superior equipments and close connection with good markets.
These industries are most important to us now. Especially, in thepresent complicated industrial structure developed highly, it is desirable to have certain industries with high degree specialities.

Professor of Location
Kobe Universily

139

A RESEARCH OF WAGE INCOME
IN POST-WAR JAPANBy NoBuKo NosE
INTRODUcrT'ION

There are some factors which determine the real disposable
income of the workers, i.e. the numbers of employment, nominal
wages, conditions of labour, prices of consumer goods and tax
structure.

Above all, tax structure and prices which determine the real
wages are the most important, because the former provides the disposable money wages and the latter is a defltztor for real wages.
Both factors accentuate or decrease the effects one another.
Under the post-war economy in Japan, we have found the strict
relation of nominal wages, price level of consumer goods, and burdenof income tax to real wages.
The vicious rise of prices brought about by the post-war inflation
and Korean war bcom in 1950 have changed not only the structureof production, currency, and circulation but also the structure ofincome distribution in Japan.
The change of wages in rea1 terms is negligible when the wages
change proportionally to the price level. But, in fact, the base-up
in wages was too low in proportion to the price rise. So it is evident that the amount of real consumption by the workers becameless according as the lowering of their rea1 income.
In addition, the direct tax is not afunction of rea1 income butof nominal income, and indirect tax levied on the workers increasedmuch with the rising propensity to consume more. Thus the priceand tax are two main factors in the wage income analysis.
The object of this article is to analyse the wage income in post-

war Japan from these two points of view---changing prices ofconsumer goods and the tax levied on the working classes.

14e NoBUKO NOSE
CH. 1 PRICE LEvEL AND WAGES
The characteristic four periods, at which the post-war Japanese
economy changed its economic structure, are as followsi) :First period from the end of War to Dec., 1946.
(characterized by the revival of consumer goods production withthe expansion of credit and the erosion of capital)

Second period from Jan., 1947 to Dec,, 1949.
(characterized by the reconstruction of key industries)

Third period from Jan., 1949 to June, 1950, just before the
Korean war.
(characterized by excise of stabilizing policy and of rationalizationin the main industries according to Dodge plan)

Fourth period from the beginning of the Korean war topresent.

(characterized by the series of munitious booms and regression,)In the following approach, we try to explain the relation between the trend of prices and the real wages in each period, and thestress will be laid on the inflation period (first and second period)

and the fourth period.

S1 Some Aspects of Wage Income during Inflation Period
In the principal process of inflation, partly because the war
damages brought 'about the severe shortage of reProduction scale,and partly because of over expenditures of the Government, sharp
increase of bank notes followed. There arose the price spiral, followed by the confusion of citculating process and the disturbanceof reconstruction. Its pressure on the workers 'was nothing morethan the forced deduction of iiving expense caused by the interwoven
reactions of price and wages.2)
The trend of prices in the infiation period which essentially dif1) `The capltal accumulation in postwar Japan,' by Sakisaka Masao, in `Japanese Economy,' pp. 11-31.
2) `Japan's economy in War and reconstruction,' by J. B. Cohen, pp. 447-448.

A RESEARCH OF WAGE INcoME IN POST-WAR JAPAN 141
ferentiated from the boom, had strong, cumulative character andits inertia did not stop until the remedy of industrial foundation
was wholly completed.3) •Under such conditions, the government airned to reconstruct theprice stability and to change the oMcial prices several times to counteract the progress of inflation.

During the first period, March, 1946, the government decided
on the new equilibrating price system setting in order 1) consumer
price of rice, 2) wages and salaries, 3) prices of coal and other fundamental materials, 4) •prices of other commodities, and still more,they took a decisive step to enforce the special fiscal device to main-

tain the price system. And yet a half year later, this oMcial pricesystem was found impossible to maintain. During the second period,
planning the industrial reconstruction, the government proclaimed
oMcial prices based on Feb., 1946, rise. But the trend of rising
prices could not be stopped. And moreover, in Jul., 1948, the govern-

ment revised again the price system to raise 80•o/6 of the oMcial
price level based on July., 1947.4)

Despite the fact that the wages one of the basic oMcial
prices was calculated on the basis of the oMcial prices of therationed goods, the Japanese labourers were obliged to purchasetheir food amounting to 76 O/o of their food expenses in black market

as a result of the government's bad control.5)

On the other hand, rising rate in the black-market prices roseso high as 390 % (Base Feb,, 1946) in Dec., 1947, and effective pricesrose about 260 % while real wages couldn't go up,6)
Indeed, to adapt the wages to such vicious rise of prices, wage3) `A research for monetary stabilization,' by Shinjo Hiroshi.
4) White Paper for economic affairs in 1949. Also, Asahi Keizahi Nenshi for
1949, p. 95.
5) Asahi Keizai Nenshi for 1945 and 1946, p. 168,
ahpiSerfifgolYgSgige,tp?e3totei. aCCOrding aS economic reconstruction. see white6) As for the trend of prices, see Table 1 and 2. As for the real wages, see
Table 3,

142 NOBUKO NOSE
base-up was carried out year after year, but wage-price relation
was not stabilized.

During the inflation period, the relation between the wages andprices was called `vicious circulation'.7)

Evidently, we see that wage base-up was immediatly followedby the rise in the cost of living, and the effect of wage base-up wasconsiderably lessened. Owing to this vicious circulation, worker's
circumstances were very miserable in the infiation period as shownby the following figures :rate of rise in nominal wages (per annum)in 1946 314%t, 1947 209%
/1 1948 185% 8)rate of rise in effective prices (per annum)in 1946 Aug.-Dec. 128.6%t, 1947 249.1%
ii 1948 165% 9)

Owing to these conditions, the rea1 wages, as shown on Table
2 and 3, were stagnant at low level.
0n the outlay side of wage income, we recognize that Engel
CceMcients were so high compared with the prewar standard, as
shown on Table 2. It is evident that living cost rose higher immediately after the rise of nominal wages and they cancelled eachother. The following data shows this circumstances:iO)
Deficit of the balance in worker's houshold. Averageof deficit in 1946, 12.7% (of revenue)

Jan. 1947 13%
Feb. ti 11 tt
Mar. i/ 14it

Apr. /t 9it

May n 5ii

Jun. ii 5it
7)
8)
9)
10)

` Inflation in Postwar Japan: by Tsuru Shigeto.
Labour White Paper for 1949, p. 208.
See Table 1.
Labour White Paper for 1949, p. 215.

Also, Oohen, ibid.

A RESEARCH OF WAGE INcoME IN POST-WAR JAPAN 143

JuL /i 13 ii
Aug. i/ 9/i
Sep. ll 611
OCt. ll 811
Nov. 1/ 811

Dec. ii -6!i (This month showed blaek figures)Now, we must notice the percentage of side job income among
total revenue in their households. By the White Paper for 1946,
this rate is shown to be twice as and that of earnings by family
1.55 times as large as the prewar standard. So we may conclude
that the householder's deficit was increasing if he depended on his
inome only.n)g2 The Relation of Pn'ces to VVages in Third Pen'od
Under the Dodge's stabilizing plan in the third period, the remarkable stabilizing policy, such as constrution of super-balanced
budget, deduction of subsidies, rationalization of industries, etc. werecarried into effect.

In this after inflation period, for the working classes cicumstances were fairly stabilized for the first time: i. e. the consumer ef-

fective price was at the peak in Mar., 1949 and then it graduallydescended in the same year, in Dec. of this year, its level
went down to 98e/o of Januarsls and decreased further until May,
1950.i2)' On the other hand the rise in nominal wages was checked tosome extent by the Three Principles on Wage's.
As for the real wages, they rose 20.80/o compared with theyears before.i4)

In spite of this fact, the household economy of the wage earners
was not always easy owing to rapid increase of taxes, as will bepointed out later.

11) White Paper for 1947, 1948, p. 56, p. 131.

12) See Table 1.
13) See Table 3.

144 NOBUKO NOSE
g3 The Relation between Prices and Wages in the Fourth Pen'od
After the outbreak of the Korean war, the wholesale prices rosefollwed by the boom, but wage-base-up lagged behind. After last
half of 1951 it rose gradually. Though the rise of consumer prices
lagged behind the wholesale prices in coming and the rate was about

but 5.40/o during three monthes after the beginning of war in 1951,
their trend was spurred on: that is, average prices in 1951, werehigher by 51,50/S compared with those in 1947, prices in Dec., 1951
were higher by 22.7% than those in Dec., 1950, And this price level
was the highest one after the surrender.i4)

But we must recognize that the high prices were essentiallydifferent from those in the infiation period, According as the process of trade cycle, this high price may well be fallen automatically.

In the postwar Japanese economy characterized by a large latentdemand for consumer goods, the price of consumer goods did not
fall even during the process of depression. It rose but a littl evenin 1952 the year when the war boom was gone. As is shown
below :-"s)rate of rising prices about 5%

ii nominal wages /f 18%
ii real wages fi 14.7.0/e
Generally speaking, 1952 was the second stabilization period for thewage earners.
The recovery of the worker's household is indicated as follows :i6)

The balance of revenue and expenditure in worker's economy
First half year in 1951 -O.8%

Last ii f/ +3.8%

First ii in 1952 +3.3%

Last /i ti +4.6%

Nevertheless, so far as we observe from the point of view ofwage income and expenditure, they are :14) See Table 1. also, Asahi year book for 1952, p. 135.
15) White Paper for 1953, pp. 210-12. Also, both of Table 1 & 3.

16) Labour White Paper for 1953, pp. 141-3. Also, White Paper for 1953, pp.

2334,

A RESEARCH OF WAGE INcoME IN POST-WAR JAPAN 145
F. H. in 1951 -6.0%

L. H. tl --05 tl
F. H. in 1952 -1•6 1i

L.H. in i/ +O.lii
On the other hand, even in 1952, its level on consumption was
80.2% of the pre-war standard, with Engel CceMcient yet so highas 51.5%.n)
Table 1. Consumer Priee index, annually indicatedÅ~Å~Å~-

l1947

1948

1949

1950

1951

1952

Jan.

31.7

78.9

132.9

135.5

138.4

158.8

Feb.

35.2

84.9

135.5

129.8

141.6

158.1

Mar.

39.0

90.7

139.8

127.7

146.5

158.5

Apr.

40.7

92.7

141.3

124.2

149.3

158.8

May

48.0

96.3

142.8

126.3

154.1

157.5

Jun.

56.0

98.0

137.8

123.7

148.4

157.8

1946

66.5

108.0

140.7

127.0

148.8

159.9

Aug.

29.2

70.4

120.4

140.8

129.8

158.6

160.3

Sep.

26.5'

74.9

119.8

140.2

130.4

158.2

160.0

Oct.

24.9

72.0

115.8

163.8

126.7

154,6

160.3

Nov.

24.5

71.9

120.6

131.4

127.4

156.0

158.8

Dec.

28.1

78.8

127.5

134.0

132.7

162.8

158.4

57.1

100.0

137.8

128.4

151.4

159.0

Jul.

Average

Source : Annual Report of Consumer Price Survey (annual reports of the Japa-

nese Statistics Bureau).
Also, White Paper for 1953, Appendix.

Table 2. A
Trend of price rise
Year

OMcialPrice

1934--1936

BlackmarketPrice
-100

1947

1948

173

1949

184

17) Labour White Paper for 1953, p. 138.

Aiso, see Table 3.

EffectivePrice146

NOBUKO NOSE
Table 2. B

Year&Month

BlackmarketPrice

Oct.1946

94.2

84.3

Nov./t

96.3

87.6.

Dec..ii
Jan.1947

Feb.t/
Mar.riApr.ffMay.ri
Jun.tiJul.tiAug.tiSep.ft
Oct.tl

Nov.m
Dec.m

EffectivePrice

111.5

101.0

132.5

118.4

159.2

131.2

189.4

138.8

215.1

140.6

225.9

173.6

244.6

205.6

272.8

24Z5

288.9

229.3

288.3

254.0

326.3

263.8

342.4

268.1

360.2

290.3

Jan.1948

380.!

295.0

Febti

398.9

298.3

412.2

311.5

Mar.ti

Source : White paper for 1950, pp. 49-53.

Base of Blackmarket Price. Feb., 1946.
11

Effective Price. Aug., 1946-Mar., 1947.

Table 3. The .Real Wage Indices and Engel

CoeMcientsA
Year

RealWageIndex EngelCoeMcient1934-1936

36

1946

72

1947

100

67

1948

149,8

62

1949

190.9

61.4

1950

247.5

57.2

1951

267.8

54.3

1952

307.6

51.1

ARESEARCH OF WAGE rNcoME !N POST-WAR JAPAN 147
B
Source: 1. Real wages indixes in
Realagelndex
Year&Month onbasedpre-waryear

Tabie A were derived

1935

100
from Labour White Pa-

Jul.,1947

19 for 1953, (Publishedper
24 Labour Statistics &by24
Research
Division, Mini27 of Labour, Japan)
stryOct.,1947

AverageofJul.,--Dec.,1947

Jan.,1948
Jul.,1948

Oct.,1948

Averageof1948

36

p. 68.
2.47Engel coeMcients were38
derived from Labour

White Paper for 1947, and for 1953.
3. Table B were derived from Labour White Paper for 1947, p. 207.

CH. 2 THE TAx BuRDEN AND IT,s EFFECT ON WAGE EARNERS
Having touched upon one aspect of real wage income it seems
appropriate to conclude this chapter with other remarks concerning
tax burdens on the workers as a whole. The basic classification of

the taxes is to classify them into direct and indirect taxes. We
consider the tax paid by the workers according to this distinction.
Firstly, the direct tax which is progressively collected on thewage base-up, would offset the effect of wage base-up.
Secondly, the indirect tax the amount of which is imputed to
final purchasers through the market prices of living goods, takes aconsiderable part of the wage. This is caused by the taxation on
the mass which instituted in the pre-war Japan and still remaining
in the post-war periods.

So both of them (direct and indirect taxes) determine the purchasing power of real wages

S1. Direct Tax and 1?Vages
Living conditions of the workers, or the real consumption ofreal wages, are expressed in the formula the higher the price, thelower the real consumption.
But, different from this, direct taxes are levied on one's nominal

wages. Therefore, when prices rise, but money income remains con-148 NOBUKO NOSE

stant, the workers will be always forced to pay a regular nominal
sum in tax, quite independent of the reduction of real income andincreased outlay for real consumption.
Still more, when wages are paid on the sliding scale with therising prices, the worker will be forced to pay more tax becauseof the rising taxable income and the graduated taxation.
Of course, there are some effective factors which relieve thissituation, i. e. to rise the level of basic deduction, to rivise the tax
rate, etc.

In fact, such measures are resorted to, but in spite of this effort,

the percentage of the tax burden of the wage earners rose year
after year.i8)

The percentage was much larger compared with the basic year,
the tendency was specially strong in 1948 and 1949, just before
the Shoup's recommendations : in 1949, it was over 4 times as large
as that of basic year. This tendency was caused by the graduatedtaxation according to rising nominal wages.
Furthermore, there are profits which could not be caught by
tax authorities during the inflation period. Therefore, in theassesment of income tax, the working classes were obliged to pay
beyond their capacity compared with other income classes.i9)
Moreover, the lowest amount to be taxed is far lower than inother -countries.2o)

These must be reformed in Japan.
How, then, were the standards of deduction and the tax ratechanged, and how were the real disposable wages changed to accord
with the changed prices ?
Firstly, the standards of deduction fairly changed year by year.

As a result, disposable wages were changed. But owing to wage18) See Table 4.
19) Cohen, ibid. pp. 425-453.
` Research for Burden of Income Tax ', The Economic Review, vol. 1, No.

3, by Takahashi, Chetaro pp. 123-5
20) See .Table 5.

A RESEARcH oF wAGE rNcoME rN poST-vVAR JApAN 149
base-up, its effect was not as much as disired. The income tax rates

were practically unchanged before the reform of the tax system by
Shoup's recommendations advice, and after the reform it was considerably lowered.
To illustrate how the rate and deduction were changed againstwage base-up, we will take the income tax levied on wages (averageof wages of all industries in Japan) year by year.2i)
Firstly, we take the wages in pre-war Japan. The annual sumof 613.08 yen was free of tax because it was far below 1,2oo yen,
the tax exemption point at that time.

On the amount equal to the average annual wage income lesstaxable allowances, 20 e/o was levied in 1946; 25o/o in 1947; 40o/6

in 1948;30% in 1949;25% in 1950, 24.170/o in 1951 (average rate
of before and after reform) and 20% in 1952.
By this, we see that the highest tax rate appeared in 1948.
Therefore, we may derive the index of real disposable wages
in postwarJapan from nominal wages, income tax paid and consumer
price index.

You see this index is yet low despite the refom for tax reductionin 1952. (Note, the productivity of labour is 102 in 1951, 109 in 1952
against 100 in prewar standard.)22)

Still more, we must remark the rising tendency of the local tax
rate. In 1951 and 1952, the local tax rate for the workers was 189oof the national tax levied on them, and 200 yen per household.
Taking account of this, the indexes of real disposable wages are
81.07% in 1951 and 95.80/o in 1952, (pre-war standard=1oo)

In short, the burden of tax was fairly heavy on the working
classes in the changing processes of postwar Japan.
Especially, in the second period, the burden of taxation was

most heavy, and in the lst and 3rd periods the burden was also21) See Table 6.
22) As for productivity rndex, see Asahi yearbook for 1947. 1948, and White

Paper for 1953.

150

NOSE
NOBUKO

heavy, but in the

4th period,

it relaxed

generally.23)

Table 4. The State of Earned Income Tax paid by working Classes
Unit-100 millions yen

YearPersonal

Taxablewage

Incomewage
Income

(A)

(B)

5L54

1934-1936

RangeofAmountofthe Taxationin'wage
Rate ofwageIncome
Responsibility
Tax
IncomeTax
CIA CIB
BIA(c)
O.4% 2.8%

14.4%

O.21

7.4

1947

4,O05.0

2,731.0

443.0

68.2

8.6

12.6

1948

9,775.0

6,955.0

776.0

71.2

7.9

11.2

1949

12,707.0

11,035.0

1464.0

86.8

11.5

1950

15,705.0

11OOI.O'

1275.0

70.0

8.1

1951

20,310.0

12,965.0

1309.0

63.8

6.4

10.1

1952

27,500.0

14,035.0

1163.0

63.6

5.2

8.3

Notes:

1.

2.

Japan

LowestLimit

CoupleCcmple vrith

2 Chitdren

11.6

Income in 1947-1952 are each fiscal
' s.
year
This data derived
from Report of Tax Survey published by
Finance, Japan.
Bureau, Ministry of

Table 5. The lowest limit ofSingle13.3-•

LowestLimit

Lovrcstrv

Limit
do!Ia:

82, 353

132

129, 412

2640

taxable wage income

England

V.S. A.

in terrns

ot Yenpound

5& 824

135
228
396

\

Tax

Germany

FranceItaly

Lowest in terms Lowest in terms Lowcst
ln terms
of Yenof YenLimit
Limit
of Yen Limit
frap
matk
L.
121, OOO 125, 840
1,530 130, 983 240, OOO 139, 2\\

229 824 121, OOO 125, 840

1,680 142, 825 240,139,23su, 168

2,

199, 471

153, 12

1em

\

131,

136, 24.

264, 120

Source : Report of Tax Survey.

23) `Research for

The Economic

the State ofReview, ibid.

the Worker's Household and Burden ofpp• 127-8, is served as reference.

Tax'

151
A RESEARCH OF WAGE rNcoME rN POST-WAR JAPAN
Income Tax Rates

Table 6.

before1949

1947 1948

1950

afterreformreforrnof

oftax

taxsystem

system

%

%

1951

1951

%
20

%%
10,OOO 20 20

lesstan\orethan 25
10,ooO
tl15,OOO 30
tl20,OOO 35
Il30,OOO 40
tl40,ooO 45
tl50,OOO 50

%

1952

%

--•

20

25
30

20

35

25

40

25

45

30

20

20

so

30

25

25

morethan\80,OOO

35

tt70,OOO 57 57

30

20

20
23

20

morethan rnorethan\80,OOO \80,OOO

25

25

25

morethen moretban morethan rnorethan\100,OOO\100,OOO\100,OOO

m90,OOO64

64

40

35

30

t/120,OOO 68

68

40

40

30

tl150,OOO 72

72

45

45

35

112eo,ooo 76

76

50

50

40

11250,Ooo 80
m300'OOO82

80

55

50

40

82

66

50

45

\100,OOO
28
30
33
38
38
43

25
30

30
35

35
40

omitthefollowing
Source :Report of Tax Survey.

Table 7. Standsrd
BasicDeduction\of Deduction for Taxation

ependencyCredit(perbead)

\

1945

600

24

1946
1947

2,4oo

72

6,OOO

240

4,800

360

oldrate1947

newrate1948

DeductionforLabouret

axltnumAmountof

DeductionforLabouter

lessthan\6,OOO

10%
22.5

11,250\•22.5

11,250lessthan\50,OOO
10,325

1,195

25

morethan\5,OOO

26,040

13.54

1949
1950
1951

oldrate1951

newrate15,OOO

1,800

15

30,OOO

25,OOO12,ooO

15

30,OOO

30,OOO

15,OOO

1530,ooO

1530,ooO

lessthan3heads
38,OOO

17,OOO

moretban4heads
15,OOO152

NOBUKO NOSE
lessthan3beads
50,OOO

1952

28,OOO

15

morethan4heads

30,OOO

15,OOO

Source :Notes;

Report'of Tax Survey.
1. Dependency Credit during 1945, 1946,

are deduction

2. Deduction for labourer is reduced fromlighting the burden of tax.

wage income in each year forfrom income

The Earned lncome Tax Ievied on Wage Earner, An example
Averageyear

1947, 1948, 1949 are deduction

from tax and during 1950, 1951, 1952amount.

Table 8.

Atrtountof

Deductien
Wages(petannum) fremIncDme

TaxableAmountof
Deducrion

AmouptIncorneftomTaxofTax

Ayailable

Wage

income

1934
-1936

Rea1

Consurner
Price
Inder

Avaitablc

1.0

100.0

1946

2,400

6,519

108

1,195.8

46.5

27.1

1947

9,789

11,082675

2,099.5

109.1

28.1

39.4

1948

l

23,805.3

33,434.7

1,792.5

11,581.4

189.0

1949

96,22829,434.2

66,793.8

2,700

17,384.1

236.9

54.3

1950

116,244

50,436.6

65,807.4

16,451.9

219.9

74.0

1951

146,400

79,043,5

67,356.5

16,280.1

255.5

83.1

1952

172,208

105,831.2

66,376.8

13,275.4

266.1

97.4

Notes: 1) Above calculation is taken for the tax levied on wage earner with 1.5
families.

2) a. The average wages in 1934-36 derived from White Paper for 1950,
Japan.
b. The wage in 1946 derived from Post War National Income publishedby Econonomic Agency.
c. The Wages in 1947, 1948, 1949, 1950, 1951, 1952 derived from Labour

White Paper for 1953.
3) a. Consumer price Index in 1946 derived frorn Annua! Report of Consumer Price Survey.
b. The other year's C. P. I. derived from labour White Paper.
This C. P. I. is not C. P. I. in all cities in Japan, but of C. P. L in Tokyo,

because the former could not be provided continually after the War.

A RESEARCH OF WAGE INcoME IN POST-WAR JAPAN1ss
Table 9. The Relation of Income to Expenditure for Tabacco

MonthActualIncome(PerMonth)

ExpenditureRateofforTobaccoforTabacco

ExpenditureFeb.1951
Mar.

22,990

297

1,292

Apr.

23,130

302

1,306

May

23,572

294

1,281

Jun.

22,803

286

1,232

JuL
Aug.

24,826310

1,249

24,767

323

1,304

Sep.

22,283

336

1,508

Oct.

24,888

310

1,246

Nov.

25,770

301

1,168

Dec.

39,494346

O,876

Average

22,655.3

283.3

1.23

Source : Annual Report of Family !ncome and Expenditure Survey, 1951,
published by Statistic Bureau, Prime Minister OMce, Japan.

S2. Indirect tax and wages
Of all kinds of indirect taxes, we take up taxes which relate to
the living of the wage earners. They are as follows:
1) of the national tax
i liquor tax

ii sugar tax
iii commodity tax
iv tobacco tax,2) of the Iocal tax
i tax on consumption of fuel and lightii entrance tax.
These taxes have not so changed as the direct tax caused by
the reform of taxation, except sugar tax after 1951. However, they
were lowered slightly.

The reason why the indirect tax is considered as taxation on
mass, are stated below :--1) Every man's propensity to expend and marginal propensity
to expend on consumer goods on which indirect tax is levied are154 NoBuKo NOSE
nearly equal, (marginal propensity to consume is equal to 1), andthe lower his income to consume, the higher his indirect tax
relative to his income. (See table `9', by this, we see that theexpenditure for tobacco does not change by the amount of income).

2) The real income of the workers was reduced and theirpropensity to consume went up higher after the War, so the burdenof the indirect taxes on the working classes increased.
To see how they bore these taxes we must confer the following
tables.

Table lO. The Taxes (Direct Tax & Indirect Tax)
by AII Workers' hougehold
ActualYear

Wage

IncomeDirectTax

BurdenexceptAvailable

DirectTax

Income\699\

in average paid

LiquorTax

Tobacco106.53\Tax

1949

13,258\12,559\156.02\

1950

15.9661,072

125

14,769172,75

125.3

1951

24,622

1,579

213

22,830247,89

193.7

1952

21,7581,426

295

20,037

209,10169.5m

AllTaxes

EarnerEarnerAllIndirect

Year

Fuel&
SugarTax Commodity
LightTax
Tax

Entrance

400.93\-1099.93\

Tax

Taxespaid

byWagepaidby
Wage

1949

3.61\

42.85\-

50\-

41.93\-

1950

2.83

50.37

60

49.17

460.421657.42

1951

33.12

78.28

88

75.82

716.812508.81

1952

42.86

68.3j

90

44.45

629.662350.66

Table 11. The Taxes (Direct & Indirect Tax) inaverage paidby Non-Official Workers household
ActualYear

Wage

IncomeDirectTax

BurdenexceptDirectTax

Available

IncomeLiquorTax

TabaccoTax

1950

11,973\-

992\-

93\-

16,8871T-

189.98\137.14\•

1951

22,1851166

174

20,845226.74220.92

1952

18,6071196

2171

17,194180.11

159.99

A RESEARCH OF WAGE INcoME
IN POST-WAR JAPANAllIndirect

Year

Fuel&
SugarTax Commodity
LightTax
Tax

Entrance

Tax

155

AllTaxes

byWagepaidbyWage

511.55\1597.55\

TaxesPaid
EarnerEarner

1950

3.19\

57.86\

57\•

46.38\

1951

30.5

97.11

63

69.92

708.192047.19

1952

41.23

58.83

79

38.96

557.42

1970.42

Source:Report of Tax Survey.
Annual Report of Statistics No 75, 76, 77 published by Tax Bureau.
Monthly Report published by Japan Monopoly Corporation.
` Monopoly ' published by Japan Monopoly Corporation.

Annual Report of Consumer price Nippon Tokei Nenkan.
`Income & Expenditure of Urban Worker Household,' Family Income &Expenditure.

To draw up the tables, the writer calculated the annual averageof monthly income, expenditures on fuel and light from Family
Income Survey in Consumer's Price Survey, average expenditures
on tobacco, propensity to consume for tobacco from Family Income
Survey in 1951, annual propensity to expend for liquor, sugar,
movie or music and commodities on which the indirect taxes are
imposed from`Report of Tax Survey'in 1950 and indirect taxes
rate in 1950.
Secondly, the Japanese indirect tax on tobacco is always includedin the aggregated amount of the government monopoly revenue. So
we had to derive the rate of tax on tobacco from this amount.

Thirdly, the writer calculated the excise tax on the commodities bought by the workers from their annual earning and its
rate.

In tables 10 and 11, we see how much the workers paid annually.

The average amount 7 indirect taxes paid by all the workers, in
1952, is 450/o of the direct tax paid by them and the indirect tax
paid by non-oMcial workers is 46.6% of the direct tax paid by them.

CONCLUSION
It is clear, therefore, that the worker's income depends on theeconomic structure, especially on the tax structure of the government
in each period. Consequently, in trying to ascertain the real wages

1ss

NOBVKO NOSE

we must analyse the price level as well as the tax structure; forthese two factors define the real wages under different conditionsof all the
economic structure in post-war Japan.
Assistant of Social Accounting,

Kobe University

157

REVALUATION IN JAPANBy SUSUMU WATANABEBAcKGRouND oF REvALuATroN
After World War II, Japan has suffered the unprecedented
inflation and the value of yen has depreciated considerably. In
consequence, it has become clear that many inconsistencies occur
when the prewar yen and the postwar yen are treated equally.
1. The depreciation of the fixed assets, which were acquired
before the war when the value of money had been stable, on thebasis of its original cost, can not recover the real capital invested
in those assets. That is, the depreciation on the original cost can

not afford to provide the necessary funds to replace the same assets
when became due, and it means the real capital being unconsciously
impaired.

From the standpoint of the cost accounting, the proportion of
the depreciation to the total cost becomes very insignificant, as theresult of its being still calculated on the basis of its old book value,

despite the other elements of cost being generally expressed in termsof the depreciated yen. Business firms must charge up the reasonable
depreciation corresponding to the price rise, and when they fail todo so, or even when they did so, if they regard the difference
between the adjusted depreciation and the original depreciation as
the rea1 profit and distribute it, the real capital shall be encroachedupon correspondingly.
2. The business capital had not been adjusted according to theprice changes, just as the book value of fixed assets had remained
unadjusted, and under inflationary conditions, paper profits arise
from inventories (Lifo was not yet recognized at that time) as well
as from inadequate depreciation. The excess profits were determinedby comparing these profits (including paper profits) with the158 SUSUMU WATANABE
unadjusted capital, and the progressive excess profits tax was
imposed on them, which makes the method of determining "theexcess profits" unreasonable. The irrationality of this becomesapparent when we compare the tax burdens of old established enter-

prises which have existed since the prewar period and the newenterprises, whose properties are exactly the same, established after

the war when the value of money became considerably depreciated.
3. Though the capital gains under infiation comprises the paper
gains as well, they are made subject to the income tax. (In caseof individuals one half of such capital gains was taxed.) •4. It is diMcult to secure real rationalization where business
management is blinded by the apparent profits, which include paper
profits. Unless the cost accounting is rationalized and prices normalized, the normal fiow of resources and funds is impeded; andrationalization of our national economy can not be accomplished.
As the means of the synthetic solution of the above mentioned
dithculties, the necessity of the revaluation was insisted on. The
movement for the realization of the revaluation originated among
businessmen who had felt these inconsistencies for themselves. It wasin the latter half of 1947 when the decline of the value of money

became increasingly apparent.i) It was the businessmen in thespinning industry who took up this problem promptly and madeconstant effort toward its solution. Especially the study and eage-rness of Mr. Ken Arimoto (then the auditor of Toyo Spinning'
Company) should not be forgotten, He proposed the prompt realization 'of the revaluation from the viewpoint of maintaining the
productive capacity of the enterprise. The following sentences arefound in the "History of Toyo Spinning Company, 1882-1952".

"The Company took up this problem before other companies
and commenced the study of the measures to be adopted, assigning
the work to the charge of Mr. Arimoto (the Auditor), who insisted

1) The wholesale price index of October, 1947, stood at 7,366.4, making 193436 average as a base, and average for 1947, at 4,815.2.

REVALUATION IN JAPAN 159
upon the fixed assets revaluation and the base stock method as asolution. The Company endeavored to arouse public opinion anddemanded their prompt realization. Such proposals were generally
supported by the learned people and the business world. But because
prices were still going up at that time, and the consideration of
their effect upon the oMcial prices made the realization quite
diMcult ".2)

As the above quotation shows, the revaluation was not easily
carried out, as such proposals affected the tax burdens and prices;and more than two years had elapsed before it was realized.
The questions then discussed concerning the revaluation were as
follows :---

1. Will not the inclusion of the written up depreciaton into theothcial prices lead to the general rise of prices and acceleration of
inflation that may oppress the standard of living of the people?
(prices were still controlled at that time, and it was after 1948 thatthe effect of the partial relief of the control of prices and resources

became conspicuous.)

2. Shall not the revaluation be allowed when the value ofmoney is stabilized? Prices were really rising in 1947 and 1948. It
was feared that the revaluation during the course of inflation would

make its repetition necessary, and the repeated effects upon theprices, as mentioned in 1. above.
3. What shall be the standard of revaluation? Which is to betaken as a standard, the current replacement cost at the time ofrevaluation or the original cost adjusted by the coeMcients corresponding to the fluctuation of the value of money?
4. Is it reasonable to impose the tax on the revaluation surplus?
5. Is it reasonable to allow freely the incorporation of therevaluation surplus into the capital or to place some limitation on
it ?

There was another opinion which proposed that the depreciation

2) History of Toyo Spinning Company, 1882-1952. p. 442.

160 SUSUmo WATANABE
based on the replacement value should be allowed and the adjustment of the capital be postponed because the latter is too early.
But according to this proposal, it was necessary to take anothermeasure to avoid inequity brought about by the existence of theexcess profits tax.

REALrzATIoN oF REvALUATIoN
The discussion pro and con about the revaluation measures
were rife among academic circles, government departments, andbusiness world. Under these circumstances, the Tax Committee,
then standing, took the problem as a part of corporation tax
reform program, and published its interim report on January oo,
1949. After its publication, the interim report suffered several
criticisms from all quarters. Meantime, the Shoup Mission wasreported to come to Japan with the object of investigating into theJapanese tax system, and the decision on the revaluation problems
was postponed to be determined by the Mission.
The Shoup Mission arrived in Japan in May, 1949, spent fourmonths in research and as a result " Report on Japanese Taxation "was published (dated August 27, 1949, in Japan it was generally

called the "Shoup's recommendations"), The Mission recognized
the necessity of revaluation, and recommended that the revaluation

shall be made as of July 1, 1949. The main features of the "Report" concerning the revaluation are as follows.
1. It took the adjusted cost basis instead of current replacement cost basis as the standard of revaluation. It says that thereappraisal value is to be determined by multiplying the cost of
acquisition less depreciation, by the ratio of a general price index
for July 1, 1949, to the corresponding index for the original date ofacquisition. As the reason of employing the general index the next
sentences can be quoted. " ••••••it would still be preferable ontheoretical grounds to use a general index. For we are not trying

to exempt from tax all gains, but only those gains that do not
represent a real increase in purchasing power. if the price of a

REvALuATroN IN JApAN 161
particular type of assets has gone up 2oo times while the generalprice level has gone up only 1oo times, the owner of such assets
is better off than the owner of assets that have gone up only
in proportion to the general increase in prices. He is accordingly
well able to bear the additional tax that will be imposed if he isallowed to revalue only to the extent of 100 times." 3)

2. It was recommended that the 6e/o tax on the revaluation
surplus should be made. Although the Mission recognized that therevaluation surplus is not a real gain but merely the reflection of apaper gain due to the depreciation of the yen, it upheld the viewthat the revaluation surplus should be subject to a tax. From theviewpoint of equity, it was considered the tax free revaluation
would be unreasonable. The Mission says " it would be granting too
much to allow the full revaluation gain to go tax free, in view of

the tax treatment that has been given to those who have alreadyrealized taxable gains, and in view of .the disallowances of the real
losses suffered by holders of fixed-income property." 4) The revalua-tion surplus shall be subject to a tax of 69o. The payment of therevaluation tax on depreciable assets, in case of corporations, shallbe paid in three years.

3. Revalued value shall be the basis of allowable depreciationand computing capital gain or loss, after revaluation. The revaluation surplus shall appear to the extent not needed to offset operating

losses, on the liability side of the balance sheet, in the form ofspecial capital. No distribution shall be made from this special
capital for five years, nor shall this special capital be the basis forthe issuance of stock.

In other part of the report, it is recommended that the excess
profits tax should be repealed. The assets revaluation law in Japanwas composed on the basis of the above mentioned recommendations.
But the revaluation in Japan was made to be voluntary, notwith-

3) Report, Vol. III,4) Report, Vol. Ir,

C 14.
p.126.

162 SUSUMU WATANABE
standing, in case of the report, the compulsory revaluation, it seems,
was considered.5)

ASSE•ls REvALuATIoN LAw oF 1950
The assets revaluation law was promulgated on April 25, 1950,
and applied as from January 1, 1950. The revaluation shall bemade as of the basic date (January 1, 1950) or the opening date of

the accounting period opening after the basic date and before
September 1, 1950. Taxpayers were able to revalue the following
assets which existed at the basic date.

a) Depreciable assets (tangible and intangible).

b) Land and rights to land.
c) Shares of stock and investment, but those possessed by
securities traders are excluded.

d) Other assets, excluding cash, deposits, accounts receivable,
securities (other than the shares of stock and investment),
inventories, etc.

The maximum limits of the revaluation differ according to thekinds of assets and the persons (individuals or corporations). The
case for the corporations is mainly explained here. The maximum5) The reasons that make us think that the Mission had considered to
enforce the compulsory revaluation is found in the following sentences
quoted from the report. It says :- "that all corporations be required torevalue their depreciable assets and land, as of July 1, 1949" (Report,
VoL II, p.126) and " that for taxpayers who do not file revaluation returns
by the dates specified, the Ministry of Finance shall assign a revaluation

figure for each of their assets against which figure there shall be no
appeal." (Report, Vol. II, p.128) "Where no return is filed within thespecified time limit, the tax oMces should have the authority to rnake anarbitrary reappraisal which should be considered final. And while normally

taxpayers should be allowed a reasonable amount of underva!uation for
purposes of reappraisal, as possibly representing their belief that theirassets were partially obsolete, where taxpayers submit an unreasonably
low figure, the tax administration should have the power to raise it to amore reasonable level and assess the 6% tax on the write up2' (Report,
Vol. rlr, C pp,22-23). But the reasons why the revaluation should becompulsory are not shown in the report.

REvALuATIoN rN JApAN 163
limits are calculated by the use of the following five tables attaching

to the law.

Table I. This is applicable to the tangible depreciable assets andnon-business houses.
Table II. Applicable to the depreciable assets for mining, and otherbusiness assets of corporations.
Table III. Applicable to the intangible depreciable assets.

Table IV. Applicable to the other business assets (of individuals)
and shares of stock.
Table V. Applicable to the land and rights to land.

Three kinds of indices are employed for constructing the above
mentioned tables, wholesale commodities price index for Tables I, II,

and III, consumer's price index for Table IV, and land price index

for Table V.
As regards tangible depreciable assets, the maximum limit ofrevaluation is computed by multiplying the acquisition cost of theassets concerned by a coeMcient relative to the year of acquisition
and the useful life of the assets, shown in the Table I. Those
coeMcients were obtained by multiplying the percentages of the unamortized portion differing according to the elapsed years after
acquisition (calculated by means of the reducing balance method) by
the ratios of price rise (the ratios of price index of June, 1949, tothe respective price indices of preceding years).6) Then the amountobtained by multiplying the acquisition cost of the assets by acoeMcient is equal to the amount obtained by multiplying theacquisition cost less depreciation (corresponding to the elapsed years

after its acquisition) by the ratio of price rise. The method ofdetermining the maximum limit was as well taken for other assets.
This method is quite different from that of France, in which depreciation reserves relative to the revalued assets are revalued bymultiplying the amount of depreciatlon provided in each year by the6) The wholesale price index of June, 1949, stood at 20,933.8 (base, 1934-•36

average=100).

164 SUSUMU WATANABE
coeMcient applicable to that year. The Japanese method is easy topractise, but theoretically the French method, the author thinks,
is preferable. Japanese method of revaluation is thus based on theacquisition cost of the assets, and not on the present value of thoseon the date on which the revaluation was made. The maximum
limit of the revaluation thus determined, to be sure, does not mean
the present value of the assets. It may better be called "revalorization" instead of revaluation. But in case of the obsolete assets orother assets the value of which at the basic date is conspicuously

and remarkably lower than the maximum limit computed in accordance with the relevant articles of the law, it is stipulated thatthe revalued amount of such assets shall not exceed the current
selling price at the basic date. So the present vaiue basis is partly
adopted in this respect.

With regard to the individual's houses acquired prior to thetime of investigation for capital levy, its appraised value for capital

levy shall be deemed the acquisition cost and the time of investiga-

tion for capital levy (March 3, 1946) shall be deemed the time ofacquisition thereof, instead of using the actual cost and time ofacquisition, and the coefficients of the attached Table I are applied

to such houses.

EFFECTS OF REVALUTION
The revaluation of assets has the following effects.
1. As regards the revalued depreciable assets, the allowable
depreciation shall be computed, on and after the revaluation dateof the said assets, on the basis of the revalued amount.

2. The capital gain is also calculated on the basis of therevalued amount.
3, But the capital loss is calculated in somewhat different manner. In case a corporation has sold its revalued assets in the
periods from the revaluation date to the closing date of the accounting

period involving December 31, 1954, if the selling price of the said
assets is less than the book value at the time of sale, the corpora-

REvALUATIoN rN JApAN 165
tion should reduce the amount of revaluation reserve by the amountof such deficiency on the day of sale, so long as the revaluation
reserve is recorded on the credit side of the balance sheet, and theamount so reduced shall not be recognized as allowable deduction

in computing taxable income. But when the selling price is lessthan the book value of the assets at the time just prior to therevaluation, the difference between them need not be charged against

the revaluation reserve, and is recognized as allowable deduction.

The amount to be reduced from the revaluation reserve, then, islimited to the amount of the revaluation surplus which arises
from the assets concerned. When such reduction of the revaluation
reserve is made, the amount equal to the 60/o of the reduced amountof the reserve is credited against the revaluation tax on the assets
concerned to be paid hereafter. In case a corporation has decreased
the book value of its revalued assets, after revaluation, the treatment

is the same as above.
4. The revaluation surplus is, in general, the difference between
the revalued amount of the assets and its book value before revaluation. The revaluation surplus could be used to write off operating
losses at the opening date of the accounting period involving therevaluation date, and the balance after the write-off of the above
losses should be set aside as the revaluation reserve.
5. The revaluation tax is assessed on the revaluation surplus
at the rate of 60/o, generally to be paid in 3 years, one half in thefirst year, one quarter in the second year, and the remainder in thethird year. With regard to the revalued assets other than the depreciable ones, the revaluation tax should be paid within two months
after the closing date of the accounting period involving the dayof the sale or the donation of the assets concerned. But in case therevalued assets have not been sold or donated by the closing dateof the accounting period involving December 31, 1954, the tax on
the assets concerned should be paid within two months from theclosing date of the aforesaid accounting period.

The revaluation tax paid shall not be deductible from gross1ca SUSUMU WATANABE
income, and be charges against the revaluation reserve.

6. A corporation may incorporate its revaluation reserve into
capital to the extent of the amount equivalent to the three fourthof its revaluation reserve (if such corporation has paid its revalua-tion tax in full, whole amount of the reserve) after December 31,
1952.

REvALuATIoN IN 1951
The assets revaluation law was welcomed, but the advantageof the revaluation was not fully availed of by many firms. The
number of corporations which fi1ed their revaluation returns (including those which did not take advantage of the revaluation) was
about 166,Ooo, but those which did revalue was about 30,300. It

was unsuccessful. One of the most important reasons was theearning power of many firms was low, and generally pessimistic
foresight had prevailed among the business world, when the revaluation law was introduced. So far as the depreciable assets areconcerned, the benefit of the revaluation is to be obtained by theincrease of annual depreciation after revaluation, and when theincome is so low as not to absorb the increased depreciation, it
is certain that the revaluation brings only the tax burden of 6%.
Meanwhile, the Korean War broke out on June 25, 1950, which had
generally a favourable influence upon our economic field. It was,then considered necessary to give another chance to those who did
not make revaluation or whose revaluation did not reach the maximum limit permitted by the law. The revaluation law was revisedin April, 1951, the object being to give another chance to makerevaluation to those who did not take full advantage of the revalua-tion law of 1950. It was called the second revaluation. Conditionsof the revaluation are similar to those of the first revaluation.
Assets to be covered are the same as before, but shares of stock

excluded. Under the second revaluation law, the revaluation may
be made as of January 1, 1951, or the opening date of the accounting period beginning after January 1, 1951, and before October I

REVALUATION rN JAPAN 167
of the same year.

In determining the maximum limit, the same methods are employed using the same attached Tables, but considering that about
one year had elapsed since the first revaluation, the maximum limit
is reduced by the amount of depreciation corresponding tb theperiod from the basic date (with respect to the assets revalued,
the revaluation date) to the revaluation date of the second revaluation. The amount to be reduced in determining the maximum llmit
is the depreciation which the corporation actually charged andallowed or to be allowed as deductions in computing taxable income.
The rate and the method of payment of the revaluation tax are thesame as before.
As to the incorporation of the revaluation reserve into capital,
the following revision is made. A corporation may incorporate its
revaluation reserve into capital to the extent of the amount equivalent to three fourth of its revaluation reserve less the revaluation
tax payable (if such corporation had paid its revaluation tax in full,

the whole amount of revaluation reserve, but as from January 1,
1953.) According to this article, the separate "Law concerning theincorporation of the revaluation reserve" was promulgated and put
in force on July 1, 1951.

The number of corporations which availed of the tax concession of the second revaluation is about 4,600 (including the special

corporations) and among which about 2,Ooo revalued their assets
for the first time.

REvALuATIoN IN 1953
As mentioned above, revaluation cceMcients were composed on
the basis of the prices as of June, 1949. Meanwhile prices in Japanrose again, and the new cceMcients were called for. The revaluation law was revised and under this revised Iaw even taxpayers
who had already revalued their assets by the first and second rev-

aluation law, were allowed to make revaluation using the newcoethcients. The main points revised are as follows.

1os SUSUMU WATANABE
1, January 1, 1953, became the new basic date, accordinglyassets acquired after January 1, 1950, came within the scope of therevaluation.

2. The kinds of assets which can be revalued are the same as
before, but the shares of stock excluded.

3, Taxpayers are able to revaluate their assets twice, once in
1953, and once in 1954, provided that the total revalued amountshould not exceed the maximum limit stipulated by the law.
4. As before mentioned, indices used in revaluation are (a)land price index (b) consumer's price index and (c) wholesalecommodities index. According to the actual rise of those indices,
the maximum limits of the revaluation were raised, i. e,, (a) about
1609e, (b) about 2e9,6 and (c) 509o raised respectively. In the caseof the wholesale price index the actual rise was about 70%, but
it was checked at 509o in composing revaluation coeficients.
5. The revaluation tax concerning the depreciable assets is tobe paid in• five years. The revaluation tax on the revalued assets
other than the depreciable assets, is to be paid within two months
after the closing date of the accounting period involving the dayof the sale or the donation of the assets concerned. But in case therevalued assets have not been sold or donated within five years
after revaluation, the revaluation tax thereon should be paid within
three years after the aforesaid period (five years after revaluation).

6. A corporation may incorporate its revaluation reserve into
capital to the extent of the amount equivalent to nine tenth of its
revaluation reserve less the revaluation tax payable.

The assets revaluation law is still valid, and the result of thethird revaluation is not yet known, whether a successful effect will

be obtained or not depends upon the prospect of the earning powerof the business enterprises.

CONCLUSION
The revaluation is a method of matching current cost of the
fixed assets against the revenue, but it is a correction only for the

REVALUATION IN JAPAN 169
infiation which had already come, and leaves the future adjustment

for further changes of the price level unsolved, The accounting
methods and procedures which automatically take care of the pricechanges, the author thinks, are to be devised.

Professor of Accounting

Kebe University

171

LAST-IN, FIRST-OUT INVENTORY METHOD
UNDER THE JAPANESE TAX LAW
By MUNEHIRO MASUZAKI
Our tax regulations concerning the Last-in, First-out method(hereinafter referred to Lifo) has been introduced to Japan, forthe first time, with the adjustment and alignment of the provisions
on the inventory valuation with the revision of the Tax Law in1950. Up to that time, there had existed no regulations on inventory
valuation under the Japanese Tax Law, with an exception of certain
working rules concerning the treatment thereof, which, however,were so simple in substance that they contained only a provision
to the effect that a corporation was allowed to devaluate the ending
inventories to the level of the "Cost (no detail was provided forin respect of its substance) or Market, whichever is lower" less
10e/o thereof.

However, such practice of devaluation, being based on no
theoretical ground, was abolished by the above revision in compli-

ance with the so-called Shoup Mission's Recommendation, and theselective adoption of rational inventory valuation methods has cometo be approved under the new Tax Law for the first time. Namely,
the ending inventory valuation has been approved to be effected by

the methods of "Cost Basis," "Market Basis" or "Cost or Market,
whichever is lower Basis" at the own option of enterprises, and as
one of the methods falling under the category of the Cost Basis, theLifo has been approved to be adopted together with other methods
as the Specific invoice method, First-in, First-out method, Weighted
average method, Mooving average method, Straight average method,

Recent purchase method and Retail method under the same category.

The tax regulations concerning the Lifo have had a long
tradition and experience under the American Tax Law, and in this172 MUNEHIRO MASUZAKr
treatise, the writer is going to explain the differences between theregulations on the Lifo under the American and Japanese tax laws,
giving some comments thereon at the same time.

I
The provisions concerning the Lifo under the Japanese Tax
Law are laid down as follows:
Lifo-Grouping the inventories by the kind, etc. and deeming theinventories of each kind, etc. to have been acquired by the oldest purchases ;the actual acquisition cost of the inventories thus deemed to constitute theinventories sha]1 be deemed to be the acqusition cost. (Corporation Tax
Law, Enforcement Regulation, Art. 20)

Furthermore, for the purpose of giving supplementary explanations to the above, the following provisions are laid down under
the Working Noticification:
Under the Ljfo, vvhen the quantity of the ending inventories of same kind,

etc. is smatler than that of the opening inventories, the ending inventories
are deemed to cons?st of the oldest purchases in the order of the acquisition

date and the appraisal amount at the end of the previous business year isdeemed to be the acquisition cost of the said ending inventories, and whenthe quantity of the ending inventories is larger than that of the opening
inventories, the appraisal amount at the end of the previous business year
is deemed to be the acquisition cost in the part of inventories the quantityof which is not over that of the opening inventories and the individual
costs are deemed to be the acquisition costs of the part of inventon'es thequantily of which is over that of the oPening inventon'es deeming the said
Part to const'st of the nearest Purchases to the oPening date of the bscsinessyear. (Working Noticification No. 184, Italjcs by the writer). Therefore, the provisions concerning the Lifo under the Japanese

Tax Law require a valuation by a strict Lifo procedure in respect
to the part of the inventories increased in the current year, which
are different from the provisions of the American Tax Law (Reg.
111, Eec. 29. 22-(d)-2) which approve a valuation to be effected not

only by the Lifo procedure but also by Fifo procedure, Weighted

average procedure or by other procedures reflecting the income

LIFO INVENroRY METHOD UNDER THE JAPANESE TAX LAW 173
clearly. This is the jirst point of difference of the provisions of the

Lifo under the Japanese and American tax laws.
However, from the point of view that the Lifo under the Tax
Law is a valuation method of the ending inventories on the periodical basis of one whole business year, the theoretical characteristics of the Lifo are not lost irrespective of the valuation procedure

applied to the part of inventories increased in the year, so far as

the said part is valued at the price level in the year concerned,
because the principal object of the Lifo is to maintain the pricelevel of the first Lifo year, that still remains in the ending inven-tories of the following business years with a far heavier weightin comparison with the quantity of inventories increased or dec-reased in the year. Accordingly, the application of valuation
methods other than the Lifo to the inventories increased in theyear with an object of avoiding troublesome computation procedures
does not always spoil the characteristics of the Lifo.

The more important matter is whether the abovementioned
principal object of the Lifo is taken in the tax law composition
or not.

In this connection, the Japanese Tax Law lays down someunreasonable provisions violating the principle of the Lifo inrespect of the appraisal amount of the ending inventories to be
carried forward to the following business year, contrary to theprovisions requiring the valuation by the strict Lifo procedure.
Namely, the Working Noticification No. 180-7 states as follows:
The acquisition cost of the opening inventories of a same kind brought

forward from the previous business year, even in the case of the Lifo
applied thereto, may be based on the average appraisal amount of theinventories as at the end of the previous business year.

Certainly, this provision has a strong point of simplifying thecomputation procedures for deciding individual acquisition cost, since

it makes it unnecessary to catch each individual acquisition cost byeach lot. However, under such an optional provision as this, theopening inventories forwarded to the current year are all deemed174 MUNEHIRO MASUZAKI
to have been acquired at the same time and at a single average
cost, which treatment has no dithculty when the ending inventories

are larger than the opening inventories, but has some diMcultywhen the case is reversed, because the part of inventories decreasedin the current year is delivered out at a single average price of theaggregated total cost of the opening inventories, which makes theinventories of the first Lifo year impossible to maintain the pricelevel in the first Lifo year, even though the quantity of inventories
is maintained.

It is very clear from what have been stated above that therepetition of such computation in accordance with the provisionsof the Working Noticification 180-7 produces a result which isfar from the strict principle of the Lifo which requires a valuation
deeming the ending inventories to consist of the oldest purchases.
It is not the Lifo in any sense but rather the Weighted averagemethod from the long-run viewpoint. Such a provision as above
is not found in the American Tax Law. This is the second pointof the difference between the provisions of the Lifo under theJapanese and American tax laws.

II

As aforementioned, the Lifo under the Japanese Tax Law
means, as a rule, such valuation method as of valuing ending inventories deeming one business year as one periodical unit. But
the Japanese Tax Law applies this idea even to one month or one
period up to the following delivery as one periodical unit, whichis the third point of the difference between the provisions of the

Lifo under the Japanese and American tax laws, The Working
Noticification concerning the Corporation Tax Law NO. 184-2 and184-3, prescribes as follows:
Such a valuation method as to compute the acquisition cost of theending inventories of a business year, deeming. the prices as computed byapplying the Lifo procedure monthly to be the acquisition cost of theinventories at the end of each month and forwarding the acqulsion cost

LIFO INVENTORY ME rHOD UNDER THE JAPANESE TAX LAW 175•thus computed to the following month by turns, shall be deemed to be the
Lifo as prescribed in Article 20 of the Corporation Tax Law Enforcement
Regulations (No. 184--2)'

Such a valuation method as to compute the acquisition cost of theending inventories of a business year, deeming the jnventories existing at
the time of each delivery after the said delivery to consist of the oldest
purchases in the order of the acquisition date, shall be deemed to be the
Lifo as prescribed in Article 20 of the Corporation Tax Law Enforcement
Regulations (No. 184-3)

In accordance with the above provisions, the Japanese Tax Law,
when the Lifo procedure is taken in the monthly inventory accounting or cost accounting, acknowledges the amount of the ending
inventories computed by such procedure, deeming it to be the appraisal amount of the ending inventories under the Tax Law. The
result of computation by the Lifo on one month basis or on one
period up to the following delivery basis is naturally different fromthe result of computation by the Lifo on one business year basis.
Consequently, if an enterprise adopts the Lifo in its monthly accounting calculation and the tax lavv acknowledges only the Lifoon one business year basis, the amount of ending inventories as
figured out from the enterprise's internal calculation is attended
with a result of being different from the appraisal amount of theinventories under the tax law, which requires the difference to be
adjusted at the end of the business year to the extent as to meet
the tax requirement. The provisions of the Working Noticification
No. 184-2 and 184-3 have been prescribed with the object of savingsuch year end adjustment trouble.
But, it is rather disadvantageous for enterprises from the viewpoint of tax saving to compute the ending inventory amount inaccordance with the above provisions when the prices of the inven-tories are tending upward. However, so far as the Lifo procedure is actually taken in themonthly inventory practice or perpetual inventory practice in thebusiness accounting, 'it is desirable that the tax law acknowledges

176 MUNEHIRO MASUZAKI
such practices in order to match tax law composition to the actual
practices, because such is a matter of course to be taken into thecomposition of the tax law as all Lifo procedures in practical use

in the business accounting are acknowledged to be taken freely atthe enterprise's own selection but under the principle of "Consistency."

The fourth point of the difference between the Japanese andAmerican tax laws of the Lifo is found in the idea of grouping(or pooling) of the inventories applicable with the Lifo. Under
the Japanese Tax Law, the valuation of inventories are required tobe effected by the kind, quality and shape, applying each valuation
method thereto respectively (refer to the Corporation Tax Law,
Enforcement Regulation, Art. 20 and Income Tax Law, Art. 12-9),
which principle is naturally applied to the grouping of the inventories applicable with the Lifo without any exception. Moreover,
the Japanese Tax Law requires, as a rule, the grouping of inventories to be effected by each stage of working process, for example,

such as steel at raw material stage, at goods-in-process stage andat finished goods stage. In other words, it requires a strict groupingby the physical and/or functional dissimilarity of the inventories.

In this connection, the same idea of grouping had been also
adopted in the American Tax Law for a considerable length of timesince the inaugulation of the Lifo, though its interpretation had
been gradually extended in compliance with the Treasury Decision
5407 C1944] and the Court Decision of the Hutzler Brothefs Case
in 1947. But, the adoption of the Dollar Value Method in the American Taw Law (amendments to T. D. 5756, Sec., 29, 22 (d)-1) has
changed the idea of grouping of the inventories applicable with the
Lifo substantially, resulting in causing a remarkable discrepancy
between the Japanese and American tax laws. Because, the Dollar

Value method was quite a new accounting method as to computethe quantity of inventories by the Lifo on the basis of the invested cost amount increased or decreased in the inventories instead ofgrouping by the physical andlor functional dissimilarity.

LIFO INVENTORY METHOD UNDER THE JAPANESE TAX LAW' 177
Tax Law interprets the homogeneity Qr fungibility of inventoriesof the same group in the sence of monetary units invested'in theacquisition of inventories, giving up to interpret in the sense of thephysical and/or functional dissimilarity. In this respect, the Ame-rican Tax Law is quite different from the idea of grouping on thephysical and/or functional dissimilarity of inventories.

m
The fifth point of difference between the Lifo provisions
under the Japanese and American tax laws exists in the provisions
concerning the relation of the Lifo and the Lower-cost-or-market
method. The Japanese Tax Law allows a corporation selecting the
Lifo to apply it to the inventories in collateral with the Lowercost-or-market method, against the negative attitude of the American

Tax Law.
Independently of the theoretical objections to the Lower-costor-market method, if a corporation that adopts other valuation
methods than the Lifo entitled to the collateral application with
the Lower-cost-or-market-method to the inventories under. the tax
law, the corporation adopting the Lifo, naturally, is entitled to thesame benefits in respect to the computation of the taxable income.
Then, what is the reason of the negative attitude of the American
Tax Law to the collateral application of the Lower-cost-or-market

method with the Lifo?
Under the American Tax Law, when the market price is lower
than the cost, the appraisal amounts of the ending inventories at
the market price is deemed to be the inventory (cost-) price of theinventories to be carried forward to the following business year andalso deemed to be the cost of the said inventries in the following
year (Reg. 111, Sec. 29. 22-(c)-3). Thereiore, if the Lifo is appliedtO the computation of the cost in the Lower-cost-or-market method,
the inventory (cost-) price declines in aecordance with the fall of
the market price and remains unchanged at the previous price level,

even after the advance of the market price, which will end in178 •MUNEHIRO MASUZAKr
giving an unreasonable lenient treatement to a corporation selecting

and applying the Lifo in collateral with the Lower-cost-or-market

method, as compared with other inventory valuation method. Thisis supposed to be the reason of the negative attitude of the American Tax Law to the collatelal use of the Lifo with the Lower-cost-or-market method.
The Japanese Tax Law, to give a solution to this dilemma, lays
down the following provisions:
In case where a corporation, selecting the Lower-cost-or-market method,
ha6 appraised their ending inventories at the market price at the end ofa business year •because of the market price being lower than the cost,
the a6quisition cost of the said inventories to be used for the valuationof the ending iriventories at the end of the following year, shall be computedon the basis of the actual acquisition cost instead of the appraisal amountat the end of the previous business year (Corporation Tax Lavv, Working
Notification No. 186)

Accordingly, under the Japanese Tax Law, the ending inventory
price which has declined in accordance with the fall of the market
price is raised up again in the following year to the original acquisi-tion cost and thus the acquisition costs constitute the opening
inventory price of the following year. Consequently, the collateralapplication of the Lifo with the Lower-cost-or-Market method
enables the ending inventories of the first Lifo year to remain
without decrease inventories, without spoiling the principle of the

Lifo. The Japanes Tax Law treats the corporation selecting the
Lifo to adopt the Lower-cost-or-market method to compute theirtaxable income, exactly in the same manner as the corporations
selecting other valuation methods than the Lifo.
Now, we can take a general view of the composition of the Ja-

panese Tax Law provisions concerning the Lifo in the course ofabove explanation. The main priciple of the provisions to the effectthat the Lifo is a valuation method standing on the presumptionthat the ending inventories consist of the oldest purchases, aims atmatching and charging the current cost to the current revenue,LrFO INVENTORY METHOD UNDER THE JAPANESE TAX LAW 179
from the point of the periodical income determination. Therefore,
the consideration for the elimination of the cost at the oldest pricelevel from its matching and charging to the current revenue shallbe the measure to judge the superiority of the tax regulations con-cerning the Lifo.x This is the reason of my objection against theWorking Noticification No. 180-7.
However, the principle of matching the current cost to the current revenue is not always realizable because of the fact that the
Lifo is nothing but a procedure for periodical allocation of cost.
It is naturally possible to match the current cost to the current
revenue when the cost allocated to the income consists of the cost
factors of the current purchases provided that the Lifo procedure
is taken on the whole year basis, but when the delivery in the current year (in other words, when the opening inventories has beenliquidated by the current delivery) and also the price level of the
opening inventries was different from that of the current purchases,
the above principle of matching is not realizable in respect to thepart of the delivery in excess of the purchase (namely, the part ofliquidation) because of the inability of charging the cost to thecurrent revenue at the same price level.
As aforementioned, the Japanese Tax Law acknowledges not only
the Lifo procedure on the business year basis but also one month
basis or one period to the following delivery basis and regulates
strictly the grouping of the inventories applicable with the Lifo.

Therefore, in comparing the Japanese Tax Law with the American Tax Law which acknowledges only the Lifo procedure on
one business year basis and supervised rather leniently the groupingof inventories, the liquidation into the opening inventories is more

apt to occur under the Japanse Tax Law than under the American
Tax Law, though the Lifo is applied to the same case, resulting
in the matching the cost at previous price level to the current re-venue. These are the matters relating to the provisions concerning

the Lifo under the Japanes Tax Law, to be should by further andfuture studies.

180 MUNEHIRO MASUZAKI
x This criterion is very important for the post-war Japan. For, in post-war
Japan under the enormous change in general price level, it must be emphasized
that, in all group, inventories price levels have changed remarkably from one businessyear to anotber. This situation, aS compared with the one in U. S. A. is as follows :(The writer divided one year, in case of Japan, into two parts E H. (former-half)and L.H. (latter-half), because it is customary with many Japanese corporations
to take a half-fiscat year as one business term)

Wholesale Price Index Numbers by Group (January, 1948=100)
1950

Japan

1951

1952

1953

F.H

L.H

F.H

L,H

F.H

L.H

F.H

314.6

425.5

553.0

472.9

417.7

400.4

388.3

TextilesU.S,A.
Japan

98.9
310.1

300.3

97.0

105.1

331.4

395.3

450.5

453.4

94.5
473.9

Fuels

U.S.A.

Metaland

Japan

ducts

U,S.A.

metalpro-

Bui!ding
materials

Chemical

Goods

Japan

U.S.A.
Japan

U.S.A.

102.5

106.4
582.5

103.6
211.9

250.3

106.2
232.2

275.4

87.4

637.6

122.6

354.4

337.7

103.8
610.3

575.9

128.0

103.0
564.3
122.5

356.7

384.6

418.7

396.7

392.2

360.2

124.3

323.3

377.3

101.9

Note: These figures are computed by the writer fromobtained from the Statistics Dept., Bank of Japan

95.0

94.2

the price index tables
and U. S. Dept. of Com-

merce

IV
As aforementioned, the principle of matching the current costto the current revenue is impossible to realize when the ending
inventories are smaller than the opening inventories, because the
Lifo is after all a mere cost allocation method. But, as is generally

well-known, the American Tax Law contains relief provisi(ms applicable to the liquidation provided that such liquidation occur in-voluntarily due to some specific reasons attributable to war conditions or to the break of normal international business connections,LIro INVENTORY METHOD UNDER THE JAPANESE TAX LAW 181
if they are only for a sho'rt period (Internal Revenue Code, Sec.
22-(d)-E, A-E (1942) F (1951)). The income determined for the yearof such liquidation is distorted by the charging of the previous costto the current income to the extent of that charging. However, by
virtue of the relief provisions, the income for the year of the liquida-tion is redetermined in the following year tracing back to the said

year of the liquidation, when the liquidation is made gopd in thefollowing year by and for the amount made good, which tretment
bestows on the income determination an effect as if such liquidation
had never occurred.
O'f course, relief provisions under the American Tax Law is aitemporarymeasure to meet the war-time or national defence contingency. No such relief measures are provided for under the Japanese Tax Law since there exists no stress in Japan.
However, such relief provisions are not unnecessary for theJapanese Tax Law because the Japanese enterprises, depending on
the foreign trade, expose themselves to the sensitive fluctuation of
the international economic trend and cannot be freee from the abnormal fluctuation of the quantity of inventories due to such reasons
as the inability of securing goods of some specific description fromabroad or as the delay of arrival of goods owing to ship's circumstances. Such are the peace-time phenomena but they are still thereasons for the occurrence of undisirable liquidations.

Whether such relief provisions are necessary for the realizationof the principle of the Lifo or they are mere political product forencouragement of industry are not discussed here, only pointing outthat this is the sixth point of difference between the provisions
concerning the Lifo under the Japanese and the American tax laws.
Hitherto, the writer has explained the provisions of the Lifo
under the Japanese Tax Law, comparing them with the provisons
under the American Tax Law, pointing out six differences as above-

mentioned, which are summarized as follows:
As to the second point of difference, Japanese tax previsions are

182

MUNEHIRO MASUZAKI

theoretically unreasonable compared with the Amerioan tax provi.
slons.

As to the first point of difference, Japanese tax provisions
ar,e too strict compared with the American tax provisions.

As to the fourth and sixth points of difference, Japanese
tax provisions need further to be studied, in comparison with theAmerican tax provisions.
As to the third point of difference, Japanese tax provisions
match the tax requirment to the business accounting practicebetter than the American tax provisions.
As to the fifth point of difference, Japanese tax provisions
are superior to the American tax provisions in respect of the tax
law composition.
Nowadays, the Lifo is a matter of concern to theorists, practioners and taxation authorities, as a leading problem of the inventory accounting under infiation. The writer believes that this problem may be better adjusted and aligned by further studies so as
to realize the principle of the Lifo in the near future.
Addeda :In Jaban, the number of large corporations that adopted the Lifo method on
their tax accoqnting is show in the following table:

AsJune,1951

c

BIA

A

B

c

B/A

59

6.3% 123

15

108

12.2%

56

52

7.1

107

14

93

13.0

57
60

54

5.4

122

21

101

17.2

56

6.6

125

13

112

10.4

A
Finishedgoodsor

merchandises
Halffinishedgoods
orgoods-in-process

Rawmaterials
Otherinventories

AsApril,1953

63

B
4434

Note:1. A==Number of corporation under this survey
B==Number of corporation that adopted the Lifo (included the corporationthat adopted the Lifo in collateral with the Lower-cost-or-market

method)C=Number of corporation that adopted other methed than the Lifo
2. These figures are computed by the writer from the survey obtained fromthe Federation of Economic Organizations (for part of July, 1951) and Associationof Business Management (for part of April, 1953)

LIFO rNVENTORY METHOD UNDER THE JAPANESE TAX LOW 183
3. The figures in the above table give the result of the investigation about a

few large corporation which adopt the modern accounting system. But, from theinvestigation to the all Japanese corporation, the percentage of the corporation that
adopted the Lifo, at the time of inauguration of the method as well as at present,

seems not to grow larger than about 2%, This is, of course, due to the future
prospect of economic conditions in Japan, and to the inadequate prevalence of theknowledge of the Lifo method among the people. But, the fact that the adoptionof the Lifo method or the conversion to this rnethod from another method necessarily places a heavier burden, at the time of inauguration of the method, on thecorporation than in the case of adopting other methods or converting from one
method to another of different kind. This can not be overlooked. Detailed discription of this phase of the problem must wait for another occasion for the lack ofspace.

Research Assistant of Accounting
Kobe Universily

THE RESEARCH INSTITUTE FOR ECONOMICS AND'1

BUSINESS ADMINISTRATION, KOBE UNIVERSITY.
The Institute was founded in 1919
attached to the Kobe University (theKobe Higher Commercial School atthat time) with the endowment fundof the Kanematsu & Company, thepioneer firm of Japan-Australia Trade,which provided the school with thebuilding and the fund to carry on
the research work. In 1949, the Insti-

tute become an oMcial organization
attached to the Kobe University, rnaintainedby the national treasury.

The aim of the Institute is to carry on
Industrial Economy in its two teams ofTeam of International Economy and thethe scientific and synthetic study ofresearch work, namely, the Research
Research Team of Business Administ-

ration. The former cornprises four sections,each taking charge to carry on research work on Foreign Trade, Marine Economy, rnternational Finance and International Rules and Agreements on Commerce; the latter comprises four sections,each of which undertakes to carry on the research work on Business Management,
Accounting, Rationalization of Industry and Labor
Problems.
Besides these regular research sections,

we have special sections closely relating

to the regular research sections to carry on

special research works by a Commit-

tee of Specialists. In the field of international

economy, two committees for spe-cial study the Cornmittee on Asian Economy, and the Committee on Latin
and in the field of businessAmerican Economy, have already been inaugurated,administration the Cornmittee on Company Accounting
has already begun its work.
These special research works are carriedon by the faculty of the Institute andworkers.

by extra-Institute and extra-Versity research

The results of the research works are publishednational Economic Review and the Kobeon the Kobe University InterUniversity Business Review (both pub-lished annually) and on the monthly journal "Kokumin Keizai Zasshi" (Journal of
Economics and Business Administration), and sometirnes in book forms treating
individual themes.

The Institute has a research staff of 19 members

and a secretariate of 11 clerks.

THE RESEARCH tNSTrTUTE FOR
ECONoMICS & BUSINEsS ADMINISTRATIONKOBE VNIVERSITY
Directot : Ginjiro SHIBArA
Seeretary : Toshie HARAGROUP OF INTERNATIONALGROUP OF BUSINES$ADM]NISTRATION RESEARCHECONOMIC RESEARCH
Ginjiro sHIBATA Profes$or ef Fercign Ttade

SttSUmu WATANABE Professor of Accountlng

and Maripe Econemics

Minortt BEtKA Professor of Prant Location

ITukuo KAwATA Professot of Eorcign Trade

Yasutaro H:RAI Professor of Butmcss

Kiyozo M[yATA Professor of Economics

Administratien

Hiroshi SHiNJo ProEesEgr oC rntesnatienal

YoshSrnoto KoeAyAsHl

Finance?rofes$or ef 3usiness

Torasaburo NoMuRA?rofessor of Transportation

Management

Taro KAwAKAMI ?rofesEor of Ptivate

Tadakatsu INeuE Assistant Professor of

Business History

Internatiopal law

Titsuo GoAMI Assistant Professor ofSei]i SAsAKI Assistant Prefessorof Matine Economics

Busincss Machincry

Hikoji KATANo Assistant in Eoreign Trade

Munehiro MAsuzAKI AsuEtant in Accountmg

Sectien

SectionMasahiro FuJITA AEsistapt in lntetnatiopal

Nobuko NosE Assistant in Sociar

Flnance Sectien

Aecoupting Section
Hidee KiTANt Engimcer of Business

Macbinery

OMce : The

THE KOBEROKKO,

Kanernatsu Memorial Hall,

UNIVERS]TY
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