# Japan's miracle: guided credit and export power

The high-growth story beneath the miracle: GATT entry, income doubling, trade liberalization, cross-shareholding, targeted industry support, export conflicts, and the rise to second-largest economy.

*This story parallel: The Industrial Revolution*
*This story parallel: The multinational corporation and the nation-state*
*This story part of: Princes of the Yen: Japan built, bubbled, and broken*
*This story part of: Money and finance*

## 1955 — Commercial Law Article 280 amended

In 1955 the Diet revised Paragraph 2 of Article 280 of the Commercial Law, allowing company boards to issue additional shares and assign them to each other without approval from current stockholders, enabling cross-shareholding takeover defenses.

> "“The new provision allowed the board of a company to issue additional shares and assign them to each other—that is, they dilute the present stock of shares without obtaining formal approval from the current stockholders.”"
> — Princes of the Yen

## 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

## 1960 — Ikeda becomes prime minister with the income doubling plan

Hayato Ikeda became prime minister in 1960 and made the income doubling plan his cabinet's major policy aim, with fiscal expenditures rising more than 25 percent per year on the back of high growth.

> "When Hayato Ikeda became prime minister in 1960 and his cabinet made the “income doubling plan” its major policy aim, fiscal expenditures increased by more than 25 percent per year."
> — Princes of the Yen

## 1961 — First round of Japanese trade liberalizations

Japan carried out its first round of trade liberalizations in 1961, but the United States remained dissatisfied and demanded the abolition of Japanese import restrictions to reduce the trade imbalance.

> "The first round of trade liberalizations had taken place in 1961, but the U.S. side was dissatisfied and demanded abolition of Japanese import restrictions in order to reduce the trade imbalance."
> — Princes of the Yen

## July 1965 — Window guidance abolished again

With window guidance attracting public attention after the Yamaichi episode, the Bank of Japan once more abolished the credit controls in July 1965, though the controls continued informally.

> "As window guidance had again caught some public attention, it was once more abolished in July 1965."
> — Princes of the Yen

## c. 1965 — Run on Yamaichi Securities and forced BoJ rescue

After stocks crashed, the fourth biggest broker Yamaichi Securities suffered a customer run, and Finance Minister Kakuei Tanaka demanded that the Bank of Japan extend unlimited credit to Yamaichi and expand credit creation, which the legally subordinate BoJ had to do.

> "As small investors pulled their money out of the market, the fourth biggest broker, Yamaichi Securities, experienced a run by its customers. Finance Minister Kakuei Tanaka was quick to take appropriate action. He went straight to the Bank of Japan and demanded unlimited credit for Yamaichi Securities and an increase in credit creation for the economy."
> — Princes of the Yen

## 1966 — Cross-shareholding program completed

By 1966 the program to boost stable cross shareholdings among Japanese firms was virtually completed, and Article 280 was modified again to give the appearance of propriety and avoid foreign criticism.

> "By 1966, the program to boost stable cross shareholdings was virtually completed. To prevent the possibility of criticism from abroad, the bureaucrats and business leaders decided to modify Article 280 to give the appearance of propriety."
> — Princes of the Yen

## 1970 — Japan becomes the world's second-largest economy

Between 1960 and 1970 Japan's real GDP rose 2.6 times, and by 1970 it had overtaken Germany to become the number two economic power in the world.

> "By 1970, Japan had overtaken Germany and soared from the ashes to become the number two economic power in the world."
> — Princes of the Yen

## 1970 — Zenith files dumping suit against Japanese television makers

In 1970 the U.S. television maker Zenith filed a suit charging that Japan was dumping television sets in the United States, an early episode in the escalating U.S.-Japan trade disputes.

> "In 1970, the U.S. television maker Zenith filed a suit charging that Japan was dumping television sets in the United States."
> — Princes of the Yen

## November 1973 — Oil shock hits Japan

The oil shock of November 1973 sent oil prices jumping and triggered panic buying of consumer staples in Japan, including the legendary Osaka toilet paper run.

> "All this happened before the oil shock of November 1973. The sudden jump in oil prices did not assuage the situation (although it was mitigated by the strong yen)."
> — Princes of the Yen

## 1974 — Inflation peaks with 26 percent consumer price rise

In 1974, following the credit boom and oil shock, Japan's consumer price index rose 26 percent year-on-year and the wholesale price index 37 percent, creating social friction.

> "In 1974, the consumer price index rose 26 percent year-on-year (YoY) and the wholesale price index 37 percent."
> — Princes of the Yen

## 1976 — Industrial production recovers after BoJ loosens credit

After the BoJ raised its window guidance loan growth ceilings in late 1975 and early 1976, industrial production recovered in late 1976, regaining its October 1973 peak and ending Japan's worst postwar slump.

> "In late 1976 industrial production finally recovered, and reached its previous peak levels of October 1973 again. Japan’s worst postwar slump was ending."
> — Princes of the Yen

## 1979 — MITI's 'samurai plan' aircraft leasing scheme

In 1979 MITI promoted a leasing scheme, devised with Japan's top banks, to cosmetically reduce the current account surplus by booking foreign aircraft leases as Japanese imports; MoF called it off after a year fearing IMF scrutiny.

> "In 1979, MITI thought that the scheme was a “trump card in reducing the surpluses” by an estimated $800 million in fiscal 1979 alone.17 The Ministry of Finance, worried that the IMF might see through the scheme, called it off after a year."
> — Princes of the Yen

## December 1980 — Japan liberalizes capital flows

Japan liberalized its international capital flows in December 1980, a major departure from the old economic structure that later served as a parallel to Thailand's deregulation.

> "There is no doubt that, as with Japan’s liberalization of capital flows in December 1980, this marked a major departure from the old economic structure."
> — Princes of the Yen