# Occupation Japan keeps the controls

The US occupation breaks Japan politically but preserves much of the economic-control machine: BoJ continuity, zaibatsu reform, reverse course, priority finance, Dodge austerity, and fixed exchange rates.

*This story parallel: The Cold War*
*This story parallel: The passing of the torch: how the American century replaced the British one*
*This story part of: Princes of the Yen: Japan built, bubbled, and broken*
*This story part of: Money and finance*

## 1945 to 1952 — U.S. occupation of Japan

The U.S. occupation, officially in charge until 1952, implemented reeducation and democratization, providing Japan with a new constitution, political parties, free elections including for women, and a market-oriented capitalist system.

> "The U.S. occupation, officially in charge until 1952—longer than in Germany—implemented the U.S. program of reeducation and democratization of the Japanese people."
> — Princes of the Yen

## August 1945 to October 1945 — Araki appointed BoJ deputy governor, then governor

Immediately after Japan's defeat in August 1945, Eikichi Araki, former wartime head of the Banking Department, was appointed deputy governor of the Bank of Japan, and two months later governor.

> "Immediately following Japan’s defeat in August 1945, he was appointed deputy governor of the Bank of Japan. Two months later, he was appointed governor."
> — Princes of the Yen

## 30 August 1945 — MacArthur arrives at Atsugi; BoJ money accepted

General MacArthur arrived at Atsugi naval airdrome on August 30, 1945, where Bank of Japan officials reportedly met him with banknotes; MacArthur accepted BoJ money rather than issuing military currency.

> "Legend has it that Haruo Maekawa was one of the monetary officials who met General MacArthur with a suitcase full of banknotes upon his arrival in Atsugi naval airdrome on Tokyo’s outskirts on 30 August 1945."
> — Princes of the Yen

## September 1945 — Occupation Order No. 3 continues economic controls

Order No. 3 of the occupation forces of September 1945 declared the continuation of Japan's wartime economic controls, and foreign currency rationing was reintroduced immediately.

> "Certain wartime legislation was officially reintroduced soon after the war, especially by MITI and MoF: the Order No. 3 of the occupation forces of September 1945 declared the continuation of economic controls."
> — Princes of the Yen

## December 1945 — Munitions Ministry and Home Ministry broken up

In December 1945 the occupation broke up the Munitions Ministry, the heart of the war economy, along with the powerful Home Ministry and its police apparatus including the Thought Police.

> "The Munitions Ministry, at the heart of the war economy, was broken up in December 1945. So was the powerful Home Ministry, with its police apparatus, including the dreaded Thought Police."
> — Princes of the Yen

## 1946 — Ichimada appointed Bank of Japan governor

In 1946, with the approval of the U.S. occupation, Hisato Ichimada, a Bank of Japan official trained in credit creation who had studied Schacht's Reichsbank in Berlin, was appointed BoJ governor.

> "In 1946, with the approval of the U.S. occupation, a young Bank of Japan official named Hisato Ichimada was appointed BoJ governor."
> — Princes of the Yen

## March 1946 — Bank of Japan freezes loan balances

The Bank of Japan's Banking Department instructed that banks could not in principle increase their outstanding loan balances beyond the level of 20 March 1946 without a permit from the Bank of Japan and the government, blocking low-priority claims on scarce resources.

> "The Bank of Japan’s control had already been asserted a year earlier, when the director of the Banking Department had issued instructions that “in principle” banks were not allowed to increase their outstanding loan balance beyond the balance of 20 March 1946 without a permit from the Bank of Japan, as well as the government."
> — Princes of the Yen

## June 1946 — Araki indicted by war crimes prosecutors and resigns

In June 1946 BoJ governor Araki was indicted by war crimes prosecutors and had to resign, whereupon Hisato Ichimada took over as governor.

> "However, as with many members of the Manchurian elite, in June 1946 he was indicted by the war crimes prosecutors and had to resign."
> — Princes of the Yen

## June 1946 to December 1954 — Ichimada rules the BoJ for eight and a half years

Hisato Ichimada, known as 'the Pope,' controlled the economy as Bank of Japan governor from June 1946 to December 1954 through his decrees on who would receive money.

> "His “infallible” decrees about who would or would not receive money ruthlessly controlled the economy for eight and a half years, from June 1946 to December 1954, while his mentor Araki oiled the communications pipeline from Washington."
> — Princes of the Yen

## August 1946 to 1952 — Economic Stabilization Board established

The wartime Cabinet Planning Board was revived as the powerful but short-lived Economic Stabilization Board, established in August 1946 and lasting until 1952, to direct postwar funding of the economy.

> "The Cabinet Planning Board was revived in the form of the powerful but short-lived (1946–52) Economic Stabilization Board (ESB or Keizai Antei Honbu), established in August 1946."
> — Princes of the Yen

## c. 1946 — Purge of the zaibatsu families

Under the U.S. occupation the zaibatsu owners were forced to sell their stocks to the public, holding companies were banned entirely until 1998, and zaibatsu leaders were purged and prohibited from further business activity.

> "The zaibatsu owners were forced to sell their stocks to the public, and the holding companies were forbidden entirely (until 1998)."
> — Princes of the Yen

## 1947 — Anti-Monopoly Law enacted

An Anti-Monopoly Law and a Law for the Elimination of Excessive Concentration of Economic Power were enacted in 1947 as part of the occupation's deconcentration program.

> "An Anti-Monopoly Law and a Law for the Elimination of Excessive Concentration of Economic Power were enacted in 1947."
> — Princes of the Yen

## 1947 — Priority lending regulations of 1947

With the 1947 Regulations on the Provision of Funds by Financial Institutions, announced by the Ministry of Finance, the government reestablished the wartime priority production system, ranking 460 types of business into lending categories.

> "Second, the government planners took the initiative to reestablish the priority production system from the wartime era with the 1947 Regulations on the Provision of Funds by Financial Institutions (Kinyū Kikan Shikin Yūzū Junsoku), announced by the Ministry of Finance."
> — Princes of the Yen

## 1947 — Temporary Interest Rates Adjustment Law reintroduced

In 1947 the occupation reintroduced the wartime interest-fixing law as the Temporary Interest Money Rates Adjustment Law, enabling the BoJ and Ministry of Finance to set interest rate ceilings; it remained 'temporary' until the 1980s.

> "The Temporary Money Rates Adjustment Law, which fixed interest rates, was reintroduced in 1947 by the occupation as the Temporary Interest Money Rates Adjustment Law. It enabled the BoJ and MoF to set maximum ceilings on interest rates."
> — Princes of the Yen

## 1947 — U.S. reverse course on occupation policy

By 1947, with the advent of the Cold War, MacArthur's democratization policies had been seriously undermined and a major unannounced U-turn in the U.S. stance toward Japan had taken place, with GHQ now advancing the continuation of the wartime mobilization system.

> "Already by 1947, General MacArthur’s democratization policies had been seriously undermined. Although there was no official announcement, a major U-turn of the U.S. stance vis-à-vis Japan had taken place."
> — Princes of the Yen

## 1948 — Deconcentration program abandoned

Of the 325 firms scheduled for dismantling in 1948, only 18 were actually split up, and the planned breakup of the five largest banks was abandoned, leaving the financial system unchanged from its wartime setup.

> "Of the 325 firms scheduled for dismantling in 1948, only 18 were actually split up."
> — Princes of the Yen

## July 1948 — Occupation restricts trade-based unions

In July 1948, alarmed by communist influence over the labor movement, the U.S. occupation restricted the right to form trade-based unions and abolished civil servants' right to strike, after which wartime company unions were revived.

> "In July 1948 it restricted the right to form trade-based unions and abolished the right of civil servants to engage in strikes."
> — Princes of the Yen

## December 1948 — Nine-Point Economic Stabilization Program

In December 1948 Washington instructed SCAP to issue a Nine-Point Economic Stabilization Program recommending tighter monetary and fiscal policies for Japan.

> "Ichimada’s views were heard in Washington, which first instructed SCAP (the Supreme Commander for the Allied Powers) to issue a Nine-Point Economic Stabilization Program in December 1948 that recommended tighter monetary and fiscal policies."
> — Princes of the Yen

## 1949 — Bank of Japan Policy Board introduced

A nominal Policy Board was introduced at the Bank of Japan in 1949, but Ichimada ensured it was placed inside the central bank and under its control, creating a sleeping board that made no important decisions.

> "Apart from the marginal change that resulted from the introduction of the nominal Policy Board in 1949, the law was still the same one that had been introduced in 1942, when the control bureaucrats were in charge."
> — Princes of the Yen

## February 1949 to April 1949 — Dodge mission and the Dodge plan

Joseph Dodge, president of Detroit Bank, was sent to Japan from February to April 1949 as adviser to SCAP; his plan, passed unaltered by parliament, prescribed an overbalanced budget, ended deficit spending, and decreed the end of the Reconstruction Finance Bank.

> "Washington next sent Joseph Dodge, president of Detroit Bank, to Japan with the rank of minister from February to April 1949 as adviser to SCAP."
> — Princes of the Yen

## April 1949 — Yen fixed at 360 per dollar

On the recommendation of Detroit bank president Joseph Dodge, a single fixed exchange rate of 360 yen to the dollar was set in April 1949, weaker than an earlier U.S. mission had recommended and a lasting boost to Japanese exporters.

> "What is known is that Detroit bank president Joseph Dodge recommended the establishment of a single fixed exchange rate, which was set at ¥360/$ in April 1949."
> — Princes of the Yen

## June 1949 — Bank of Japan Policy Board established

The Bank of Japan's Policy Board was established in June 1949, the only change made to the wartime BoJ Law of 1942 until that law was scrapped in 1998; it was widely known as a sleeping board.

> "The Policy Board was established in June 1949—the only change made to the BoJ Law of 1942 until it was scrapped in 1998."
> — Princes of the Yen

## September 1951 — Japan rebuilt as the Pacific anchor

The US occupation and the 1951 security treaty made Japan the cornerstone of American power in the Pacific. Washington backed the long-ruling, pro-Western Liberal Democratic Party, kept major bases, and helped drive Japan's economic rise as a bulwark against communism in Asia. Like West Germany, Japan became a democratic anchor rather than an authoritarian client.

## 1952 — Araki appointed ambassador to the United States

In 1952, shortly after the ban on suspected war criminals holding public office was lifted in 1951, Araki was appointed Japan's ambassador to the United States, the most important diplomatic post.

> "in 1952, Araki was appointed ambassador to the United States, almost straight from being under investigation for war crimes."
> — Princes of the Yen

## 1953 — Anti-Monopoly Law watered down

By 1953, a year after the U.S. occupation left, the Anti-Monopoly Law had been drastically watered down: restrictions on stock retention, interlocking directorships, and mergers were relaxed, and depression and rationalization cartels allowed.

> "By 1953, just a year after the departure of the U.S. occupation, the Anti-Monopoly Law had already been drastically watered down. Restrictions on stock retention, interlocking directorships, and mergers were relaxed, depression and rationalization cartels allowed."
> — Princes of the Yen

## 1954 to 1956 — Araki returns as BoJ governor

After the U.S. occupation ended, Araki moved back from the ambassadorship to head the central bank again, serving as Bank of Japan governor from 1954 to 1956.

> "Araki switched surprisingly smoothly back from U.S. ambassador to central banker and controlled Japan’s economy again as BoJ governor from 1954 to 1956."
> — Princes of the Yen

## 1954 — Ichimada becomes Minister of Finance

After serving as the longest-serving Bank of Japan governor, Hisato Ichimada was appointed minister of finance in 1954, giving him legal control over monetary policy and a platform to lobby for greater BoJ independence.

> "In 1954, having been the longest-serving Bank of Japan governor, Ichimada became minister of finance. Now his control over monetary policy was legal."
> — Princes of the Yen

## 10 December 1954 to 12 June 1958 — Ichimada serves as finance minister

Former BoJ governor Ichimada was appointed finance minister in the first Hatoyama cabinet on December 10, 1954, was reappointed twice, and later served in the first Kishi cabinet until resigning on June 12, 1958.

> "Ichimada was appointed as finance minister to the first Hatoyama cabinet on December 10, 1954. He was reappointed to the second Hatoyama cabinet (on March 19, 1955) and to the third (on November 22, 1955). He resigned with the entire cabinet on December 20, 1956."
> — Princes of the Yen

## 1955 to 1993 — Formation of the Liberal Democratic Party

The unification of several parties created the Liberal Democratic Party in 1955, establishing a one-party reign resembling the wartime Imperial Rule Assistance Association system; all governments were solely LDP until 1993.

> "It remains to say that the unification of several parties to create the so-called Liberal Democratic Party in 1955 established the one-party reign (if not rule) that provided the democratic fig leaf for the control bureaucrats who were actually running the country."
> — Princes of the Yen

## 1955 — Kishi unites Japan's conservatives with CIA funding

Kishi unified Japan's conservatives under Liberal Democratic Party with CIA funding and allowed his political followers to be CIA recruits.

> "In November 1955, Kishi unified Japan’s conservatives under the banner of the Liberal Democratic Party."
> — Legacy of Ashes: The History of the CIA

## September 1955 — Japan joins GATT

Japan attained GATT membership in September 1955, having secured exemptions to the membership rules; the Diet revised the Commercial Law the same year to enable takeover defenses.

> "In 1955, just in time for GATT membership in September of that year, the Diet revised and amended Paragraph 2 of Article 280."
> — Princes of the Yen