Japan Post-War Economic Miracle

DISCLAIMER : Referencing this blog is highly NOT recommended. If you are writing for an academic purpose please refer to the original authors in the reference list.


         Japanese economy was devastated following the defeat of the country in World War II. Human casualties, high unemployment rate, demolished industrial complexes, payment and compensation for war damage were the face of Japan’s economy during that period. The allied forces led by the United States’ general Douglas MacArthur occupied Japan and reform the country’s military, political, economic and social circumstances. The U.S feared the rise of Communism and the onset of Cold war would led Japan to establish economic ties with communist countries in seeking to re-establish its own economy. The occupation led Japan to hand over the right to use any military forces and relied on the United States for protection. This policy enabled the country to decrease its spending on military and defense forces, which contribute to economic reform. Japan emerged as major economy and showed a tremendous growth throughout the decades known as ‘Japanese economic miracle’.

The United States is credited as the main contributor towards Japan’s economic miracle. However, there are arguments that support the ‘other factors’ in contributing to the recovery of the Japanese economy. This essay is to argue whether the united states deserve more credits in its role in shaping Japanese economy or there are other factors that contribute in stimulating the economic growth.

The Role of the United States

            The United States occupied Japan for seven years immediately after World War II and General Douglas MacArthur reformed Japan’s economic structure to be self-sufficient. Establishing democracy and pluralism was the main purpose of the occupation, however, in later years the U.S began to change tack and stressed the need for economic recovery due to the fact economic dislocation encouraged the growth of communism. During this period, the U.S had suspended and prohibited military production, eliminated the concentration in production and property rights, and resumption of peaceful economic activity. This policy liberated the Japanese economy and propelled the economic reconstruction.

Japan enjoyed protection after signed the security treaty in 1960 which commit the U.S. to help to defend the country if Japan came under attack, in return the country need to provide bases and ports for U.S. armed forces. Plus, the article 9 under the new Japanese constitution installed by MacArthur forbids Japan to maintain armed forces. This treaty and new constitution lifted Japan from military spending and enable the monetary resources to be channeled towards growing the country’s economy.

Economic assistance to Japan also came in the form of $2 billion in direct economic aid with the span of five years. Japan enjoyed free ride on defense due to protection by the U.S. and economic aid. However, other internal factors within Japan itself were more important in explaining Japan’s postwar economic miracle.


Internal factors within Japan

            One of the most important factor for Japan in achieving such rapid economic growth was the government action to create an economic environment that stimulated the growth. The role of government in rebuilding the Japan was crucial. “Economic development has been persistently pursued as a national goal by Japan’s business and political leaders since Meiji Restoration in 1668 and with renewed enthusiasm after the 2nd World War.”  Soon after the War, elected Prime Minister Shigeru Yohisda emphasized on economic development through trade-offs between the use of Japanese soil for U.S. military and Japanese defense to the U.S, thus allowed Japan to cut costs on defense, and get the access to American market and new technology. After Yoshida, PM Hayato Ikeda also concentrated his policy to economy and pledged to maintain the economic growth. This policy laid a solid foundation for the Japanese economic expansion from the mid-1950s.

When the Japanese economy began to show rapid economic growth, the Bank of Japan (BOJ) introduced the ‘window guidance’ policy. This core economic policy consist of direct credit allocation quotas strictly enforced by central banks. The BOJ provides guidance to financial institutions (other commercial banks) regarding their lending position. The regulations took in the form of increase in loan or limitation of overall lending position. The window guidance required commercial banks to direct their loans to firms operated in strategic industry targeted by the government for economic development and reduce loan to non-strategic industry. Japanese banks had focused their loans on firms operated in industries that support the shift of the country’s economy from weapon based industry to consumer good industry. This policy helped the emergence of firms such as; Hitachi, Toyota, Sony, Mitsubishi, Toshiba and others, which drive the export industry of Japan and contribute to the economic growth of the country. These manufacturers’ cumulative increase in output and productivity played an important role in the growth of Japanese economy.

Beside window guidance by Bank of Japan, the government also contributing the growth of the economy speared by Ministry of International Trade and Industry (MITI). MITI steered the course of the nation economy and coordinated its industrial growth. MITI hoped to shape and direct Japanese production by administrative regulations. It targeted specific industries for growth and establish relationship with foreign market on which Japanese firms would concentrate their market expansion. The minister focused on giving out financial aid in the industries of steel, shipbuilding, chemicals, and machinery which were forecasted of having large and rapidly growing international market and helped Japanese economy to grow quicker. The minister also protected all the modern industry of Japan until the targeted industries gained enough power to compete in the world market. MITI’s strong linkage with private sector created a collaboration between the state and big businesses. These characteristics had defined the role of MITI in driving growth for the economy of Japan.

The support from government and private sector had accounted the formation of business group called keiretsu. The group link industrialists, banks and trading through ownership of stock and long exclusive relationship, where individual companies gained financial strength and connections that allows them to cut foreign rivals and gain market share in high-growth industry with long-term potential. The combination of keiretsu and the main bank system reduced financial risks faced by individual companies and enable Japan to complete its industrialization successfully. The organization of businesses in keiretsu is one of the factor that drives the growth of post-war Japanese economy by establishing inter-financing between keiretsu members. This inter-financing was essential in post-war Japanese market, considering the absence of venture capital in the market. By filling the gap in Japan’s maturing economy, monitoring and sharing risk between members, the keiretsu collaboratively develop high-growth economic era of Japan.

In conclusion

In explaining Japan post-war economic miracle, there is no single factor that embrace all the necessary elements in driving the economic growth. There were external factors in the form of military protection and financial aid, thus enable the country to recover rapidly. Besides that, the internal factors triggered by government incentives and contribution by private sectors had driven Japan’s economic growth. The quest of economic recovery initiated by early Japan’s post-war Prime Minister had united Japan in achieving mutual objective. The politicians took early initiative in visioning the recovery of the economy. Doctrine and policy made by the government served the purpose of economic recovery. The quest then continued to the banks and individual businesses itself. The central Bank guided the commercial banks on channeling their loans to strategic industrial sector to help the economic growth. The Ministry of International Trade and Industry protect the industry and directed the growing sector by linking the government and individuals company, and helped businesses in international market expansion. The organization of businesses in the form of keiretsu helped individual companies in gaining financial support and business connections in order to compete against foreign rivals. Private businesses supported by government initiative, helped Japan to recover its economy after being devastated in World War II.


[NHK]. (2015). A Portrait of Postwar Japan: Economic Miracle. Japan. NHK Studio.

Best, A., Hanhimaki, J. M., Maiolo, J. A., & Schulze, K. (2008). International History of the

Twentieth Century And Beyond. New York: MPG Books.

Crawford, R. J. (1998). Reinterpreting the Japanese Economic Miracle. Harvard Business Review, 179-184.

Endo, Mieko, “Douglas MacArthur’s occupation of Japan| Building the foundation of U.S.-Japan relationship” (2006). Theses, Dissertations, Professional Papers. Paper 2104.

Fukumoto, T., Higashi, M., Inamura, Y., & Kimura, T. (2010). Effectiveness of Window

Guidance and Financial Environment. Tokyo: Bank of Japan.

Harrison, T. (2008). 21st Century Japan: A New Sun Rising. Ohio: Black Rose Book Ltd.

Hoshi, T., Scharfstein, D., & Singleton, K. J. (1993). Japanese Corporate Investment and Bank of

Japan Guidance of Commercial Bank Lending. In K. Singleton, Japanese Monetary Policy (pp.

63-94).Chicago: University of Chicago Press.

Johnson, C. (1982). MITI and the Japanese Miracle: The Growth of Industrieal Policy, 1925-

  1. Stanford, CA: Stanford University Press.

Leitner, P. M. (1999). Japan’s post‐war economic success: Deming, quality, and contextual

realities. Journal of Management History, 5(8), 489-505.

McWilliams, W. C., & Piotrowski, H. (1997). The World Since 1945: A History of International

Relations. London: Lynne Rienner Publishers.

Miyazaki, Y. (1967). RAPID ECONOMIC GROWTH IN POST-WAR JAPAN —With Special

References to “Excessive Competition” and the Formation of “Keiretsu”. The Developing

Economies, 5(2), 329-350.

Neeson, K. (2008). Lesson in Nation Building: The American Reconstruction of Germany and Japan (Unpublished Dissertation). Queens University, Belfast.

Nester, W. R. (1993). American Power, the New World Order and the Japanese Challenge.

New York: Palgrave Macmillan.

Packard, G. R. (2010). The United States-Japan Security Treaty at 50 . Foreign Affairs, 89(2) 92-103.

Sakurada, D. (1998). Why we need the US‐Japan security treaty. Asia-Pacific Review, 5(1) 13-38.

Siddiqui, K. (2009). Japan’s Economic Recession . Research in Applied Economics, 1(1),1-25.

Takada, M. (1999). Japan’s Economic Miracle: Underlying Factors and Strategies for the Growth. Retrieved from [Lehigh University, Department of International Relations].

United States Office of The Historian. (2017, April 30). Occupation and Reconstruction of

Japan, 1945–52. Retrieved from Office of the Historian, Bureau of Public Affairs:


Watanabe, A. (2016). The Prime Ministers of Postwar Japan, 1945–1995: Their Lives and

Times. Maryland: Lexington Books.

Werner, R. (2015). Princes of the Yen: Japan’s Central Bankers and the Transformation of the

Economy. Abingdon: Routledge.


Here are some book I would recommend if you want to know more about the Japanese Economic Miracle


America and the Japanese miracle by Aaron Forsberg



MITI and the Japanese Miracle by Chalmers Johnson



Japan: The System that soured by Richard Katz




Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.