A s -o& A10 8X3Li ~~~A.S.-10 Cl. F. ~L# RESTRICTED This report is restricted to use within the Bank. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT JAPAN: ECONOMIC SITUATION AND PROSPECTS June 18, 1953 Middle East FILE COt SM Department of Operati T Asia and Middle East . ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ - I CURRENCY CONVERSION $1.00 - Y 360 1 - $0.00277778 Y 1,000,000 _ $2,777.78 v ------i. I~~~~~~~~~~~~~ TABIE CF CO1T1NDNTS PLae CHARTS 1 - 7 STTIRARY AND COh-CLUSIOS .................. ..... i--v I. II'iTRODUCTION .................... 1 The Warts Aftermath ................ I Stzructure of' the Economy ............. 2 * Stages of Postwar Recovery * ....... 5 II. PRODUCTION .... .. .... ... .... 7 Agriculture, Forestry and Fislheries 7 Industrial Production ....... 9 1. Electric Power ........ 9 2. Coal ... -.0...*...... . 13 3. Iron anad Steel .... . ........... o 14 4. Machinery ard Equipment ......... 5. Chemicals ...... . . ... . ........ 2,O 6. Consumers Goods - TextiJas Z2 Construction ......... * 27 III. FIENANCE .. ....... .. ......... . 29 The Shortage of Capital ......................... 29 Self-Financing . . .0. .............. 32 Stock and Bond Issues . . . ....... 34 Financing by Banks ....... .... .35 Governmnent Funds for Industry ........ 38 1. U.S. Aid Counterpart Fun . 39 2. Trust Fiud Bureau ......39 3. Special Account for Agriculture, Forestry and Fisheries Loans 4.0 4. Government Financial Institutions. . 4.0 a. Export-Import Bank . ....... 40 b. The Development Bank .... 4.0 c. Other Government Financial Institutions ... 42 Government Finance and Inflation ............... . ,42 Rage IV. FOREIGN TRADE AIM BALANCE CF PAY IZIS .................. 50 * Foreign Exchange Holdings .......... . 51 Low Trade Volume ... 51 Composition of Exports and Termss of Trade 52 Shlift in the Distribution of Trade . 52 Dependence on the Dollar Area 53 Overall Balance of Payments ............. 57 Capital o5ovements .......58 Payments with the Dollar Area . 59 Payments with the Sterling Area . .59 Payments with the Open-Account Area 60 Prosnects for a Closer Balance of' International * ~~~~~~~Payments ....... .-.................... , 61 1. Exports . ..... ... 64 2. Imports . . . . .. . 4 . .... ...... .. ... ... 66 3. Invisibles .... .. ........ 68 4. Conclusions .............................. 71 V. IEV E aT1EhN 1E UURLEIS 72 El6ctri6 Power ..... . ...... ..... 72 Industrial Investment: Coal and Steel ............ 75 Investient in Agriculture 76 Investment in Transport .............4. . .. 77 Investment in Conninications ....... .. .. 80 Housing Invest ment 3 i t 4 0 44444 *44.4a4S *. ..a... 0 Implications of Large Tnvestplent .. 81 1. Restraint on conasumDZton 82 2. Incentives to saving... ... 83 3. Mtaintenance of GovermYent Revenues at a High Level 84 ANME 1 -.2 Indicators of Savings U.S. Aid Counterpart Fund Assets and Liabilities of Trust Fund Bureau Principal Accounts of the Development Banik Balances of International Payments Postwar Foreign Investnent in Japan Open-Account Agreeir.ents Estimated Annual Service Charges on Japanese External Bonded Indebtedness Electric Power Development Program CHART I JAPAN: INDUSTRIAL PRODUCTION INDEXES (1934-36 AVERAGE = 100) 500 I I I I I E I I I l 1 i - 500 END OF YEAR 400 Ij 400 li *~~~~~~~~~~~ I | I,uMACH[NERY MANUFACTURING 300 i -300 l I ,1 1 ,,"~~ I O/I 200 I -200 CHEMICALS I dTOTAL INDUSTRIAL * / 6g~~~~~~~~~MANUFACTURIN PRODUCTION t_* 100;/*-@@ 1 °° TEXTILES MANUFACTURING '34 '35 '36 '37 '38 '39 '40 '41 '42 '43 '44 '45 '46 '47 '48 '49 '50 '51 '52 '53 IBRD- Economic Staff No. 785 CHART 2 JAPAN: TOTAL EXTERNAL TRADE VALUE 30(BILLIONS OF U.S. DOLLARS) E 3 2.5 2.5 2.0 -2.0 TOTAL IMPORTS J..< 1.5 - 1.5 * 1.0 - 1.0 CMERCIAL i .5 -, :e. 5.5 O O VOLUME INDEXES (1934 -36 =100) 1 20 100 -100 80 --80 60 -60 b \~~~~~~~~~~~~~\ \\_ , '\'\ ~~~~~~~~~~IMPORTS--, <" 40 -40 0 -j~~~- ^ ~20 -\ \ w /EXPO)RTS -20 O~ I I I O 1934-36 '47 '48 '49 '50 '51 '52 '53 '54 '55 AVE RAGE I BRD - Economic Staff No. 7 1 CHART 3 JAPAN: VALUE OF EXTERNAL TRADE BY GEOGRAPHIC AREA 1938 1951 (BILLIONS OF U.S. DOLLARS AT 1938 PRICES) 1.2 - 1.2 1.0 1.0 .8 8 .6 .6 .4 __.4 .2 .2I 0 EXPORTS IMPORTS EXPORTS IMPORTS No. 783 l8RD- Economic Staff CHART 4 JAPAN: VOLUME OF EXTE:RNAL TRADE BY COMMODITY EXPORTS IMPORTS (INDEX, 1934-36 AVERAGE -100) 9 00 ... ... - 00 90 OTHER 90 -:::ALL 80 -_ 80 CERAMICS 2-3i22 MACHINERY ...... 70 m 70 METAL P ODUCTS OILS, FATS, AND RAW RUBBER 60 _60 F FS MIERL 50 __ ... OTHER. TEXTILE..50 OTHER :: .:::: ::: l .",OTHER TEXTILE : .:::: ::..:....... :TEXTILES: 40 __ _ 40 I - lAND'0... 0...... _ WEAT --=- 30 SYTHTIS30 20 __20 O X m __ :BAARNLX L:= LL=jl _ tO 1934-36 1951 1934-36 1951 NOTE: Commodity distribution bosed on percentaqe of total value in each year. No. 782 I8R0- Economic Stotf CHART 5 JAPAN: EXTERNAL TRADEI WITH U.S. EXPORTS j IMPORTS (MILLIONS OF U.S. DOLLARS IN PRICES OF YEARS SHOWN) 700 -700 600 600 ALL OTHER CHEMICALS 500 500 MACHINERY AND VEHICLES IRON ORE PETROLEUM AND PRODUCTS 400 _... _ COAL 400 7 300 ______300 200 ~~~~~~~ALL OTHER SY EN *~~~~~~~~~~~~~~~~~~~~~~~~~-Y BEANS PRECIOUS METALS, IEo f JEWELRY STEIRODUCTS 100 ~~~~~~~CLAY PRODUCTS SLK PRODUCTS _ 0 MAUFACTURES imm: ~ ~~PODCTS No. 784 ORD- Economic Stoff CHART 6 JAPAN: MONEY SUPPLY JAPAN: WHOLESALE (BILLIONS OF YEN) PRICIE INDEX* ] + I i j 800 (1934- 36 AVERAGE = 100) END OF YEAR (Logarithmic scale) 700 ..-- DOSIT l40,000 C CuRRENCY 600 END OF YEAR (Logarithmic scale) 30,000 500 42(/ 20,000 400 10,000 300 8 =,000 RREN 6 >47 48 949 50 9552 39 86,000 200 4,000 3,000 150 2,000 100 100 46 '47 '48 '49 '50 '51 '52 '53 4 800 * _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~~6 0 0 400 300 .200 '37 '38 '39 '40 '41 '42 '43 '44 '45 '46 '47 '48 '49 '50 '5I '52 '53 *In Tokyo No.786R IIBRD-Economic Staff CHART 7 JAPAN: LOANS AND DISCOUNTS, AND DEPOSITS - ALL BANKS (BILLIONS OF YEN) 3,000 i I - 3,000 END OF YEAR 2,500 - 2,500 DEPOSITS LOANS AND DISCOUNTS%, 2,000 2,000 1,500 ....- 1,500 I1,00 1,000 500 500 0 O 1936 1940 1946 1948 1949 1950 1951 1952 1953 IBRD -Economic Staff No. 787 SUMMARY AND C ONCLUSIONS 1. Japan has experienced a rapid economic recovery since the war. Industrial production in 1952 was 425o higher than in 1934-36; and agri- cultural output has also exceeded prewar levels. Per capitaT consumption approximates prewar standards even though housing conditions are still inadequate. The physical damage wrought by the war has been largely re- paired. Substantial foreign exchange reserves have been accumulated. At the end of April 1953 these reserves apparently amounted to about $1,026.5 million, including nearly $828 million in dollars. Total reserves are equivalent of 50.6ko of the value of goods imported in 1952. There was a small declinie in reserves for the first time in the second half of 1952, and in the first four monthxs of 1953 total foreign exchange holdings declined by about $116 million, although dollar reserves continued to rise, It can be anticipated, however, that the rate of decline in the first part of 1953 will diminish during the balance of the year. 2. These figures, however, obscure certain basic weaknesses in the economy. Japan with her 85 million people is probably the most densely populated country in the world in relation to available natural rescurces. She is heavily dependent on imports of foodstuffs, raw materials and fuel. Serious difficulties in supporting a grow7ing population largely insnired the prewar expansionist drive for secure markets and sources of suiply. Since the prewar years the problem has been complicated by a l9tp increase in the population, the loss of overseas territories and the denial of access to the nearby Asiatic mainland which supplied Japen with much of her requirements for bulky raw materials and foodstuffs. Thus Japan has to support a larger population on the basis of diminished resources. At the same time she suffers from certain structural changes in the pattern of world trade which have severely curtailed the market for raw silk and for cotton textiles wvhich have always constituted a large proportion of Jaoanese exports. 3. These difficulties are manifested particularly in Japan's foreign trade figures. The volume of commercial exports is only a little over 30p of prewar levels, although at the same time Japan has been able to keep imports to almost 50,P of prewar quantities through shifts irL pro- duction, more intensive use of domestic supplies and economies in the utilization of raw materials. The postwar period has been characterized by large commercial trade deficits. In 1952 the total deficit was abo-ut $750 million of which about $560 million was with the dollar area. With the United States alone Jaran had a commercial trade deficit of nearly $424 million. In 1952 commercial export (excluding exports under U.S. procurement) covered about 63%' of imports. The virtual loss of the nearby Asiatic mainland as a source of supply and the limited availability of foodstuffs and raw materials in non-dollar areas has caused Japan to turn increasingly to the dollar area and particularly to the United States for necessary imports, especially of foodstuffs. 4. In the postwar years these trade deficits have basically been covered by U.S. aid and various forms of special dollar expenditures in Japan. The U.S. has surplied to Japan more than $2 billion in goods paid out of appropriations made by the U.S. Congress. These appropriations ceased by the middle of 1951, but in recent years they have been supple- mented and more than replaced by other special sources of dollar income to Jai,an. This income has been derived primarily from (a) U.S. procure- ment of goods and services to support forces in Japan and Korea, (b) personal dollar outlays by U.S. personnel, primarily military, in Japan and (c) Mutual Security Program purchases. In 1952, Japan received from these sources a dollar income of about $800 million. U.S. aid and U.S. dollar disbursements have together exceeded commercial trade deficits and have thus resulted in a substantial balance of payments surplus and considerable accumulation of foreign exchange, particularly dollar ex- change. 'Without this special dollar income, the balance of payments would have shown a deficit of about $500 million. There appears to be no prospect of any early decline in expenditures associated with the pre- sence and maintenance of U. S. Forces in Japan regardless of the course of events in Korea., With cessation of Korean hostilities U.S. dollar ex- penditures in Japan for the supply of forces in1 Korea may be expected to decrease. But for some time at least this decline will be offset, probably to a considerable extent, by outlays for Koreana reconstruction and sharply augmented Mlutual Security Program expenditures in Japan. For the near term there is, therefore, a strong likelihood that special earnings will continue at high levels. Over a longer neriod., as Japan assumes a pro- gressively greater share of the burden of her own defense, the volume of these types of U.S. special dollar procurement may, however, be expected to drop off substantially. 5. Japants most urgent future task is therefore to increase her foreign exchange earnings to compensate for the orobable decline in special dollar income and at the same time to provide for the natural growth in the population which at an annual rate of 1.25$ may be expected to aoproximate 6 million over the next five years. In view of the intensive exploitation of her resources which Japan has already achieved, this task undoubtedly offers a severe challenge. It should be remembered, however, that the Japanese are a resourceful and energetic people w,ho have in the past demonstrated their ability to make the most use of scanty resources and to adopt modern and efficient techniques of production. Japan also possesses a rather diversified industry which, however, requires moderni- zation and certain structural changes in view of the impact of the war and changes in world. markets. 6. A detailed projection of Japan's balance of international pay- ments suggests that she may well be able over the next five years to reduce her annual deficit, exclusive of special dollar income, to a figure betwzeen $300 and $400 million. In the longer run, it is possible that a furt,her reduction may be effected as a result of accelerated develom'men, of the raw material and foodstuff resources of non-dollar areas, particularly of southern Asia and of Oceania, and, to the extent that future changes in world political conditions mayr permit it, by some -ii- extension of trade with the mainland. In the face of all these uncertain- ties, it would hardly be prudent, however, to anticipate that Japan will be able, particularly in the near future, to balance her international accounts at a tolerable level wiithout the continued availability of sorie sort of special dollar disoursements. 7. The reduction in the deficit foreseen above involves marked changes not only in the volume but also in the structure and orientation of' Japanese foreign trade. Total exports by 1957 will have to be about 45% higher than in 1951 while the increase in imports will need to be restricted to approximately 20k. Some reduction in current dollar imnorts will be necessary and all of the additional imports required will have to be obtained from the non-dollar area, At the same time the Japanese have perhaps rather too sanguine expectations of ex)anding exoorts at a rapid rate, Since the future market for cotton textiles and certain other consumer goods is hardly promising, Japan expects in the future to export a much larger volume of capital goods, particularly machinery and chemicals. The detailed analysis made later in this report suggests that the trade targets as a whole may be realized in the main, although an objective assessment of the prospects indicates that the residual commercial deficit by 1957 is more likely to approach $400 million than $300 million. Another critical factor in the forecast is the antici-oated volume of exports of machinery, ecquipment and chemicals. In most of these products Japan has not in the past had a competitive advantage, as in the case of textiles. In these lines it has been handicapped partly by high raw material costs and partly by a lag in technology. Thus a determined effort to make these products more competitive will be necessary. 8. If Ja:pan is to reduce her dependence on special dollar excharLge earnings and reduce her commercial trade deficit, a considerable volume of domestic investment will be necessary. The goal of greater self-support implies much higher levels of industrial and agricultural production and corresponding expansion in transport and communications and in the genera- tion and distribution of electric power. Certain urgent consumer require- ments, particularly in housing, also have to le satisfied. Japan stil1 has idle industrial capacity, but there is great need to modernize production facilities for the purpose of improving quality and lowering costs. Modernization programs have been undertaken ir. some industries, and in recent years a large number of technological assistance contracts have been concluded between Japanese and foreign firms for the purpose of 'lupdating11 Japanese industrial technology. For the future it is particularly urgent to carry out appropriate investment programs to raise the quality and reduce the cost of coal, iron and steel which intimately affect the cost of machinery, equi-pment and chemicals. Particularly heavy investments will be necessary in Dower which at present is a serious bottleneck in the economy. Most of the nower expansion will be in the hydroelectric field since Japan possesses aimle water poower resources and comparatively little coal, although it should be noted that the unstable suiply of hydroelectric power will necessitate complementary investment in thermal generating facilities, In domestic transport further electrification of the railways and expansion of rail capacity appears most urgent although some improvement -iii- of existing roads and some expansion of port facilities will also be necessary. Further additions to the merchant marine appear desirable in the light of its potential foreign exchange eEarnings and savings. Finally, it should be noted that considerable investment in agriculture will also be required if Japan is to become more self-sufficient in food- stuffs. Although Japan already has a comparatively intensive agriculture, there are definite possibilities for increasing output through drainage, irrigation, reclamation and even improvement in agricultural practices. 9, Past experience indicates that Japan can sustain a high rate of investment. In the postwar years, however, this high rate of invest- ment has created severe inflationary pressures. Pollowing the end of the war Japan experienced a drastic runaway inflation. This was halted through the adoption of a financial stabilization program in 1949. With the boom generated by the outbreak of the Korean war in 1950 inflationary pressures again became very marked. While government financial policy continued to be disinflationary in effect, an extraordinary expansion of bank credit abetted to some extent by the Banr of Japan took place. There was little or no effective control over credi' or the volume and type of investment. 5Overlending" brought about a rapid exoansion in money supply and sharp increases in prices which wer'e undoubtedly sustained and stimulated by the fact that Japanese industry had no difficulty in selling its products at rising prices under the prevailing boom conditions. More recently, howrever, a contractive tendency has set in with the moderation of the Korean boom. While government financial policies over the past four years have helped to check inflation, pressures arising fron demands to increase both investment and consumption may jeopardize financial sta- bility in the long run unless the government is firmly determined to hold the line. Recently the Japanese have shonm a tendency to relax restraints. If continued, this relaxation might produce alarming results. 10. For Japan it is obviously necessary to finance future investment requirements without resort to inflation. Renewed inflation would in- crease the demand for imports and at the same time seriously reduce Japanese exports some of which are already experierncing difficulty in com- peting in foreign markets. The current disequilibrium in the trade balance would thus be aggravated rather than improved. To avoid inflation and ensure the volume of investment essential to greater self-support, it will above all be necessary to strike a close balance between invest- ment recluirements and ca-oital resources. A careful husbanding of re- sources will be essential. The government wtill have to institute a strict screening of future investment needs and, through aDpropriate fiscal and credit policies, encourage savings and essential investments while dis- couraging less urgent investments. In order to release more resources for investment the rise in consumption will have to be restricted by tax policies and curtailment of consumption outlays in the government budget. Althou>h changes in the tax structure may well be needed to stimulate savings and self-financing by industr,Y, overall tax revenues will have to be kept at a high level to provide the government adequate funds not only for essential public investment in such fields as transport, -iv_ agriculture and power but also for investment in essential private in,- dustries through such government financial institutions as the Development Bank. 11. The Japanese Government has recentlyr given some evidence of its determination to screen future investment requirements and. to determilae appropriate priorities. Firm policies are necsessary to husband available resources carefully by restricting increases in consumption, stimulating savings and limiting investment to essential recjuirements, If such policies are followed, it should be possible to avoid serious inflation or large-scale foreign borroving. The Japanese Government feels, however, that it should be in the position to borrow modest amounts abroad. In view of the volatile nature of a considerable part of Japants foreign ex- change income, it is necessary for Japan to maintain relatively large foreign exchange reserves. Some foreign borrowing would provide Japan with an extra foreign exchange cushion with which to meet the possible impact of additionsl investments on its foreign exchange position in the years immediately ahead. The Japanese Government considers that it can plan to meet the needs of the future with greater confidence if it caLn rely on some additional external resources. 12. Attainment of Japanese economic viabi.ity in the long run would be markedly facilitated by acceleration of economic development in south- east Asia and the removal of obstacles to an expansion of internationial trade. Southeast Asia is a notential producer of greatly increased amounts of foodstuffs and basic raw materials for which Japan would supply a ready market, Such increased production would, in turn, mean increased purchasing power and thus a wider market for imported goods. This mar- .et expansion would afford onpportunities for Japanese consumer and capital goods to come in without crowding out the traLde of other countries also dependent for their existence upon overseas markets. Governimental action by the countries concerned, private inivestmenit, international coopera- tion through such agencies as the Colombo Plan and the Bank, are all needed to accomplish this mutually beneficiaL develomment. 13g Increased use of existing physical and mannower resources can, however, only be effective if trade restrictions are relaxed and a free exchange of goods and services accelerated. Limitations placed on Japants access to overseas markets, of course, contribute to her present trade deficit. Unless these restrictions can be relaxed, improvement in her industrial efficiencies and reduction in the cost of the raw materieLls which she produces can be only partically effective. 14. United States postwar policy in the Far East generally and large postwar special dollar expenditures 5in Japan in particular, reflect U.S recogrition of its basic interest in Japan as a vital element *Ln the Pacific area. There is no reason to anticipate that in the foreseeable future the importance of Japam will diminish. 15. There is little doubt that Japan w,rould make every effort to repay loans wrhich are contracted in the future, The Japanese record of _V_ meeting debt obligations has generally been good. Debt service w-as interrupted by the war, but In September 1952 the Japanese Govern- ment made an agreement writh representatives of sterling and dollar bondholders providing for resumption of payments and full settlement of all principal and interest in arrears. An accord on the small French franc debt is still under negotiation. A settlement on the dollar debt incurred for supplies furnished by the U.S. Government irn the nostwar years is still pending. -vi- JAPAN: ECOONCIAIC SITUAHIOiW AND PROSPECTS I. INTRODUCTION The 1WarIs Aftermath Japan's economic problems, serious even before the war, have been greatly aggravated as the result of the war and its aftermath. The gro-ing disparity between population and available resources, which was the com- pelling factor in the aggressive drive of the thirties for assured markets and sources of supply, has become still more marked, The repatriation of millions of Japanese from overseas and the process of natural growth have increased the population by 19% since 1938. Today 85.8 million people are crow¢ded together in an area of 142,300 square miles whlich is roughly the size of California. The war inflicted a tremendous amount of physical destruction which is officially estimated to have impaired about 25% of i Japants national wealth. Japan has not only lost her overseas possessions - Pormosa, Korea, Kwantung, the southern half of Sakhalin and the southsea islands, but has also been virtually deprived of access to China following the enforced relinquishment of economic dominp-tion over Manchuria and North China and the Communist revolution on the Asiatic mainland. Thuis she has been largely cut off from areas which in 1938 took 61% of her exports and supplied 40j of her imports, including all of her imports of rice, sugar and soya beans and a substantial part of her imports of coal, iron ore, pig iron and timber. As a result, Ja-pan has had to shift to other sources of supply, particularly the dollar area, for essential food- stuffs and raw materials: and she has found it necessary to cultivate other markets wvhere competition is keener. Japanls trade has also suffered from the existence in many countries of discriminatory trade restrictions on Japanese products. At the same time Japan as a leading textile exporter has experienced great difficulty in selling her cotton textiles in the face of a shrinking world market, and has lost a large part of her raw silk market in the United States to synthetic fibers. Japan has accord- ingly been confronted with the necessity of drastically changing both the direction and the character of her foreign trade. Postwar political changes have also had their repercusslcns on the Japanese economy. The occupation under SCAP, terminated in 1952, left its impact in the shape of many political and economic reforms designed : primarily to democratize political and economlic life. Japan was endowed with representative democratic institutions att the local, prefectura:l and national government levels. tWhile Japan has managed to avoid political extremes under this democratic regime, the national Diet or parliament to which the cabinet is responsible has been characterized by a delicate balance of political forces which has tended to inhibit vigorous and constructive government action in the economic field. For example, the Liberal Party governnent of Prime Minister Yoshida was defeated in March - 2 - 1953 by internal dissension within the governing party and new elections had to be decreed for April even though the existing House had been elected only the preceding October .V The new Libera:L Party government formed by Prime Minister Yoshida after the April elections does not enjoy an assured majority in the Diet. In the economic sphere the dissolution of the Zaibatsu or large combines which largely dominated finance, trade and industry has at least temporarily weakened business leadership and the competitive power of Japanese industry. At the same time the encouragement given to labor unions and the growing political consciousness of labor has tended to create a demand for higher wages and living standards without a corres- ponding increase in the productivity of labor to maintain competitive costs. Structure of the Economy Despite a poverty of natural resources Japan has managed to build up in modern times a rather diversified economy thanks largely to her industri- ous and skillful population. The distribution of employment gives a general indication of the present structure of the economy. Out of a total average employment of 37,285,000 in 1952, 46.9% were engagedl in primary production - agriculture, forestry, fisheries and mining. Agriculture and forestry alone accounted for 43,3.9j of employment. Manlifacturing was next, with 17.5%. Of the balance, commerce and finance absorbed 14.5%; the service industries, 9.lp; transport, communications and public utilities, 5.1%; and government, 2 .9X. 1/ The composition of the Lower H{ouse of the Japanese Diet as it emerged from the elections of April 19, 1953, is given below together with a comparison with the two preceding Diets. April 1953 October 1952 Prior to Party Blection Ilection October 1952 Liberal (conservative) 199* 240 285 Hatoyama Liberals 35 - - Progressive (predominantly conservative) 76 85 67 Right-Wing Socialists 66 57 30 Left-Wing Socialists 72 54 16 Communists 1 0 22. Labor - Farmer 5 4 4, Cooperati-ve ) 2 Minor Parties ) 5 4 Independents 11 19 4 Total: 466 466 437 * Liberal Party headed by Prime Minister Yoshida. - 3 - To some extent the continued large em=loynment in agriculture is a remslt of popoulation pressure and the comparative scarcity of other employ- ment opportunities. In large measure, however, it reflects the intensive use to which Japan has pUt her limited land resources. Japanese agr-- culture is characterized by intensive cultivation, a high level of technique and correspondingly high yields. Because of the mountainous nattire of the terrain, only 16% of the total area is cultivated. In terms of cultivated land Japan has the highest population density in the world. Yet Japan still manages to produce about 75% of her food requirements. With timber Japan is more generously provided, even though her timber resources have been seriously affected by overcutting during the war and postwar years. 1kntfacturing has developed in Japan despite a rather slender supply of local raw materials and fuel. As far as energy resources are concerned, Japan has almost no petroleum; her coal deposits are of low quality and comparatively expensive to workc, and betw-een 35% and 40% of the coking aoal requirements need to be imported; and hydroelectric power, of which there is a large potential supply, is made more expensive because the supply of water is seasonal and the topography of the country does not permit the establishment of adequate storage capacity, thus necessitating considerable thermal gelnerating facilities to balance the power supply. Domestic iron ore and iron sand is low in quality and inadequate in quantity, so that approximately three fourths of total consumption have to be imported. Of non-ferrous metals Japan has almost enough copper, bult has to import a substantial part of her requirements of lead and zinc, manganese, tungsten and molybdenum and all of her needs of bauxite and nickel. Except for silk, Japan is alnost completely deficient iLn textile fibers. The chemical industry must obtain from abroad all of its phosphates anld most of its salt. / That manuffacturing has developed rapidly despite scanty natural re- sources is primarily attributable to (1) the existence of a plentiful and comparatively cheap labor supply, (2) a capacity for hard work and for rapid acquisition of industrial skills, and (3) a great resourcefulness in taking over the industrial techniques of the West. The textile irnustry was the first industry in which Japan demonstrated her capacity to compete ,witha thie West. Other consumers goods industries were also among the first to develop. The basic industries - iron ard steel, machinery and chemicals, for which conditions were less favorable, grew much more slowly. They received their impetus largely from the two successive world wars and required considerable encouragement and ass,istance from the government g/ The exact degree of Japanese dependence on im:ports necessarily fluctuates somewhat from year to year. In terms of her requirements Japan in 1957 had to import 100% of her crude rubber, bauxite, raw wool and cotton, and phosphates; 88.6% of her crade oil; O.4% of her salt; 77.7% of her iron ore; 52.6% and 45.9% respectively of ber wheat and barley; 8.l% of her rice; 66.27o of her sugar; and 39.1% of her soya beans. - 4 - for their development. Today, however, they far outrank the textile industry in importance. The structure of manufacturing industry is best indicated boy Table 1, based on the 1950 census of manufactures. Table 1 Struncture of Japants Manufacturirg Industry Va:lue of Regularly Shipments Employed Value by all Manu- Workers in all Added by all facturing Type of Manufacturing Industry Yanufacturing Manufactitring Industry (in terms of percentage of total) Heavy Industry Chemical and Related Products 9.22 14.94 13.23 Petroleum and Coal Products 0.68 1.17 1.43 Primary Metal Industries 8.54 12.37 13.45 Fabricated Mebtal Products 3.51 3.07 2.91 Non-electrical 1!achinery 8.94 6.70 4.89 Electrical Machinery and Goods 4.60 4.15 3.22 Transport nt 7.66 5.66 5.26 Sub-total 43.15 48.06 44.39 Textiles and Apparel Textiles 20.82 19.07 21.67 Appare a-nd related products 2.28 1.37 1.68 Sub-total 23.10 20.44 23.35 Food and Kindred products 7.86 8.17 12.53 Lumber, Timber products, Furniture 8.42 4.59 4.37 Paper and lAllied Products 2.58 3.84 3.57 R:ubber Products 1.99 2.59 2.43 Leather and Leather Products 0.51 0.61 0.72 Stone, Clay and Glass Products 4.86 4.42 3.30 Instruments, Optical Goods, Watches 1.34 0.97 0.77 All Other 6.19 6.31 4.57 Total 100.00 100.00 100.00 Another dist-nguishing featuzre of Japanese manufacturing ineLustry' is the continued importance of small enterprise. In 1950, 56.6% ol' all those engaged in manufacturing were employed in establishrents with less than 100 workers. Factories with 200 or more workers employed 35.5% of the - 5 - total; and there were only 339 plants with 1000 or more workers. The percentage engaged in establishments with less than 100 employees w4as highest - from 80% to 97% - for the metal fabricating, apparel, food, furniture and lumber and lumber products industries, and lowest - 40.9% and 24.8% - for the entire machinery and equipment industry and the primary metal products industry respectively. For the textile industry it was about 50%. To some extent the predominance of small-scale industry hias complicated the task of rationalizing manufacturing with a view to imaproving efficiency and quality and reducing costs of production. Stages of Postwar Recoverv In tracing postwar developments in Japan it is possible to distinguish roughly four phases: the first lasting until. 1948; the second extending to the outbreak of the Korean lWar; the third covering the Korean war boom; and the current period beginning in 1952. These periods, of course, merged into each other but each was characterized by some distinguishing feature. The first period was marked by the collapse of the w%ar economy, rapidly growing inflation and concentration try the occupying authorities on fundamental reforms and measures designed to destroy militarism and the war potential of Japan. Comparatively little attention was paid to recovery, and imports consisted primarily of relief supplies. In the second period emphasis shifted to recovery. With the hielp of gfenerous U.S. appropriations more raw materials and foodstuffs were imported. Industrial activity doubled and exports began to revive. Initially this recovery was financed by inflationary mans, but in 1949 SCAP 3/ began to enforce a stabilization program which brought an abrupt halt to further inflation. The various devices through which Japan had been insulated from the world ecoromny and outside competition were progressively abandoned. Iviultiple exchange rates were abolished in favor of a uniform rate and the imany subsidies which had supported industry wtere gradually elininated. The budget was balanced and a debt retiremento program instituted. T;he resulting deflation was putting severe -pressuLre on industry to reduce costs when the Korean war broke out. With thle boom gererated by the Korean war a sellers' market again emerged. 'War procurement contracts flowed to Japan in considerable volume, and Japan had no difficulty in selling abroad the prroducts of hqer industry at rising -rices. Even the products of tlhe r.etal industry, which had hitherto been l'east competitive, found a ready market abroad. Although the financial stabilization pro ;ram was generally maintained, wholesale prices rose 56% and retail prices 28% under the imnact of market condiitions. Industrial activity increased by 50%. Ex,anding expoorts, wTar contracts and rising dollar income from U.S. troops in Japan all comir.bined to yield a very large surplus of foreign exchange amounting to no less than the equivalent of ;?765 million in the year and a half following the outbreak of the Korean war. V Supreme Commander Allied Powers. - 6 - The current period is characterized by the slackening of the war boom and the renewed necessity for Japanese industry to compete in the foreign market under more normal conditions. The beginning of this period cannot be precisely determined. Industrial production as a whole began to level off 7by the middle of 1952 and was increasingly sustained only by expansion of the domestic market. Export prices dropped rapidly and the value of commercial exports declined sharply in the second half of 1952. In the sar.e ,eriod the balance of Dayments tended to become adverse. The end of t1ids period of relative ecolnomic stagnatuion cannot be prophesied. -7- II. PRODUCTION Despite the great difficulties confronting the Japanese econony there has been a remarkable recovery of production in the postwar period. This is reflected by figures on gross national product, agricultural out-rrt and industrial production. Gross national -product rose from an average of Y16.3 billion i.n 1934-36 to an estimated 46079 billion in the fiscal year 1952. A/ The latter figure, deflated by the wholesale price index, represents approximately an 8% increase over the prewar level. Per capita gross national product, however, was only about 87% of that in 1934-36. Data on the volume of agricultural and, industrial production indicate that the gross national product for 1952 may be somewhat underestimated. According to thiese figures industrial activity in 1952 was 43% higher than in 1934-36 while the output of agriculture, forestry and fise'eries was about 7X0 greater. Agriculture, Forestry and Fisheries In this field the index of production stood as follows in 1952 (1934-36 100): Agriculture - Total 106.5 Crops - Total 113.7 Rice 110.3 Wheat & barley 128.1 Others 115.9 Silk 30.9 Livestock 126.8 Forestry 108.3 Fisheries 106.2 Grand Total 106.6 The increase in crop production is not borne out by official harvest figures but is nonetheless real. The postwar system under which thei govern- ment has collected and distributed food grains has put a premium on under- estimation of acreage and production 'oy farners. On the basis of rather accurate consumption data, the government has recently increased itEs estimate of dor2estic output -markedly. For 1950-51, for example, the actual rice harvest, which is generally about three times the volume of wheat and 4/ This is the fiscal year beginning April 1, 1952. - 8 - barley production, amounted to 9,950,000 metric tons (in terms of browrn rice) as compared with an official estimate of 9,346,000 tons and an average harvest of 9,413,000 in the period 1933-37. Because of a sharp decline in demand for silk and, in the postwar period, the profitability of rice production, silk is tne only agricultural product in which' there has been a conspicuous drop in output since prewar years. The area planted to mulberries dropped from 556,231 cho S/ in 1936 to 181,565 cho in 1951; the production of cocoons from 82.9 to 24.9 million kan, 6/ and the output of raw silk from 705,458 132-lb. bales to 215,268 bales. Although production has risen in the postwar period, exports have actually declined in recent years owing to a substantial increase in domestic demand 7/ whilch by raising prices has tended to make silk less competitive in foreign markets, particularly in the United Statues. Among the forest products the productioin of timPber has increased most rapidly - namely, from 66.3 million koku 8/ in 1934-36 to 102.4 mil- lion in 1951 and an estimated 85.9 million in 1952. The large demand of timber for 'building has led to considerable overcutting. In 1952, for instance, ouitput ex1ceeded total annual growth by 19% and annual growth in the accessible, developed forests by 139%. The situation has been aggravated by the fact that for many years reforestation has been carried out on an inadequate scale. Since 1949 the area replanted has again exceeded the area cut, but as of 1952 it was (stimated thlat 1.2 million cho were still in need of reforestation. The recovery of fisheries is particularly vital to Japan primarily because i'ish constitutes an important part of the diet 9/ and, to some extent, also, becauise marine products are a significant item. in exports V/ 1 cho = 0.992 hectares or 2.451 acres. 6/ 1 kan = 3.75 kilograms or 8.267 lbs. 7/ Raw Silk Output and Distribution (bales) ExLort Domestic Retention* Cutput Percentage Exported 1950 94,621 82,372 176,993 53.5 1951 68,378 146,890 215,268 31.8 1952 70,185 186,502 256,687 27.3 *Including that for export fabrics. The amount of silk fabrics exported declined steadily, howqe-ver, over this period. 8/ 1 koku = 9.827 cu. ft. 2/ The Jimportance of fish is primarily attributable to the fact that the intensive agriculture of Japan cannot supeort much livestock. In 1950-51 fish contributed four times as mLuch protein to the diet as livestock and almost 2.5 times as much in terms of calories. _9- to the dollar area.10/ Despite the loss of extensive fishing areas such as those in Russian waters and off the Kurile Islands, the Japanese fish catch in 1951 (about 7.8 million lbs.) was about 93% of that in 1936. hlile thle total catch has lagged considerably behind the increase in the population, the production of fish in terms of edible products was apparently 98% greater in 1951 than in 1936 (4108.9 million kan as comipared to 206.6 million kan). By 1951 the total number of fishing vessels 1waS 18% greater than in 1936 and the number of powLiered vessels 146% larger. Industrial Production The development of industrial activity as a whole and separately for utilities, mining and manufacturing is shown in Table 2. Overall production, while still about 20% below the wartine peak, has shown a remarkable recovery. The degree of recovery, however, has varied widely. The rmanu- facture of non-durable goods reached 1934-36 levels only in 1952. Within this category textiles are still about 30I% below prewar while chemicals are substantially higher. In the field of durable manufactures the largest increases over prewar levels have taken place in precision instrunentis, transport equipment and non-electrical machinery. Even in the latter category, however, the Production of machine tools hlas been at very low levels. In non-manufacturing outout the biggest increases were registered by electric power and by a nur-ber of raw materials, particularly iron and zinc ores. On the other hand, coal production has continued to lag 1ehind the general recovery. A few of the more significant developments in industrial production will be discussed in some detail below. 1. Electric Power The production of electric power rose, as Table 3 indicates, from 32.7 billion KWH in 1938 to 47.7 billion in 1951. The estimated output for 1952 - about 51.6 billion - was more than double the average in 1934-36 and 58% greater than in 1938. For a number of reasons electricity production far outran industrial production. Electricity has tended to replace coal as a source of energy in the postwar period because coal has been relatively scarce and =ach higher in price. M'ost of the electric power output - about 83% in 1949-51 - comnes from hydroelectric plants; and there was initially considerable excess generating capacity so that output could increase rapidlyj despite a relatively modest increase in capacity. While coal prices have risen 329 times since 1934-36, the average price of power has increased only 144 times. The relatively low price, for instance, has encouraged residential and commercial consumption of electricitr which is currently running at about 7.9 billion KWH as compared with about 3.3 billion in 1938. Other factors in the slharp rise in power consumiption is the steep increase in the output of certain products such as chemical fertilizers, which require large amounts of power, and the electrification of the railways. 107 In 1951 marine products accounted for 5% of Japanese exports to the dollar area. Table 2 INDICES OF INDUSTRIAL ACTIVITY AND PRODUCTION (1934-36 = 0oo) P rewar or Wartime Postwar Postwar Dec. Feb. Peak Lo.w Peak 1948 1949 1950 1951 1952 1952 1953 INDUSTiRIAL ACTIVITY 176.2 (1944) 39.2 (1946) 150.3 (Dec. 1952) 67.1 86.6 101.9 133.9 142.9 150.3 138.6 UTILITIES 156.2 (1943) 87.8 (1945) 207.2 (Dec. 1952) 138.4 156.2 169.2 183.7 198.9 207.2 182.9 ILECTRICITY 155.6 (1943) 94.6 (1945) 211.8 (July 1952) 147.4 164.8 176.6 186.8 200.0 205.4 171.7 INDUSTRIAL PRODUCTION 178.8 (1944) 30.7 (1946) 143.4 (Dec. 1952) 58.5 78.2 93.8 127.8 136.1 143.4 133.3 MINING 147.0 (1942) 73.0 (1945) 141.7 (Mar. 1952) 82.9 96.2 101.5 115.0 119.6 107.4 136.7 METALS 222.9 (1944) 61.9 (1946) 178.3 (July 1952) 76.7 101.5 115.8 127.7 157.9 152.4 142.8 Iron Ore 595.4 (1944) 193.8 (1947) 499.2 (July 1952) 217.8 296.5 320.9 345.6 405.1 349.6 357.4 Copper Ore 150.0 (1943) 26.3 (1946) 92,3 (Oct. 1952) 40.7 51.8 62.3 67.0 84.3 89.8 81.4 Zinc Ore 288.6 (1943) 67.8 (1946) 312.2 (Oct. 1952) 105.6 140.9 165.4 204.4 274.9 270.4 228.7 COAL 146.7 (1941) 52.8 (1946) 138.6 (Dec. 1951) 87.6 98.6 99.9 112.5 112.6 97.3 134.8 MANUFACTURE 182.1 (1944) 28.9 (1946) 146.4 (Dec. 1952) 56.5 76.7 93.2 128.9 137.4 146.4 133.2 DURABLE M2ANUFACTURE 320.4 (1944) 36.5 (1946) 181.6 (Dec. 1952) 78.6 107.2 119.0 169.5 173.5 181.6 161.7 Pig Iron 226.3 (1942) 11.1 (1946) 199.4 (May 1952) 43.0 82.3 118.7 166.3 184.7 183.9 189.9 Steel Inrgot 166=2 (1943) 12,1 (1946) 160.1 (4ay 1952) 37.3 67.8 105.4 141.6 152.2 137.4 137.3 MACHIhERY 463.3 (1944) 51.4 (1946) 201.8 (Dec. 1952) 105.3 128.3 122,6 181.0 177.1 201.8 170.3 Machinery (non-electrical) 308.2 (1943) 45.1 (1946) 214.4 (Dec. 1951) 110.9 144.9 118.7 183.5 164.2 189.8 163.5 Machine Tool 884.3 (1943) 21.0 (1946) 58.9 (Dec. 1952) 29.5 28.4 18.5 29.6 35.6 58.0 45.9 Sewing Machines 468.6 (1941) 10.8 (1945) 5709.3 (Dec. 1952) 439.6 731.5 1257.6 2913.0 4327.4 5709.3 4692.1 lElectric Machinery 123.7 (1938) 16.4 (1945) 151.2 (July 1951) 102.2 112.7 105.7 135.4 107.6 134.8 100.3 Transportation Equipment 960.9 (1944) 52.6 (1947) 218.4 (May 1952) 90.5 87.8 113.8 180.7 191.8 202.6 176.0 Bus & Truck Chassis 855.6 (1941) 109.7 (1945) 601.2 (Aug. 1951) 315.9 379.0 387.1 517.7 476.7 467.6 489.0 Ship 1080.6 (1944) 41.1 (1947) 443.4 (Mar. 1952) 80.1 80.6 112.9 218.7 251.0 428.6 278.0 Freight Car 220.5 (1940) 29.8 (194?) 361.0 (July 1951) 191.9 113.3 112.0 185.5 154.7 148.4 86.o Precision Equipment 137.0 (1941) 42.6 (1945) 619.3 (Nov. 1952) 186.2 374.5 292.8 389.8 500.2 603.8 517.3 CERAMLICS 176.8 (1939) 29.1 (1946) 153.6 (Dec. 1951 64.1 88.1 100.6 140.2 141.1 148.0 132.9 Sheet Glass 133.8 (1937) 11.9 (1945) 202.6 (Dec. 1952) 49.8 82.3 109.9 135.7 157.4 202.6 159,0 Cement 117.6 (1940) 18.0 (1946) 154.3 (oct. 1952) 35.9 63.4 86.3 126.8 137.8 142.6 122.4 Chinaware 359.3 (1941) 35.8 (1945) 212.7 (Dec. 1951) 152.1 173.0 150.9 193.4 176.1 187.0 177.6 tUBR,tJ11-W00D Pli0DUCTS 131.9 (1941) 53.9 (1945) 170.9 (Mar. 1952) 92.7 94.9 97.6 149.2 156.0 158.2 157.9 Table 2 (Cont'da) INDIORS OF INDUSTRIAL ACTIVITY AND PRODUCTION (1934-36 100) Prew:ar or Wartime Postwar Postwar Dec. Feb. Peak Low Peak 1948 1949 1950 1951 19-2 1952 1953 NON-DURABLE MANUFACTURE 124.3 (1937) 21,8 (1946) 113.1 (Dec. 1952) 35.6 48.0 68.8 90.5 103.4 113.1 106.2 TEV ILES 144.2 (1937) 12.2 (1946) 75.3 (Sept.1952) 23 1 30.1 44.6 61.5 70.9 73.5 69.5 Yarns 106.7 (1937) 8.3 (1945) 57.6 (Sept.1952) ,0.0 24.9 34.2 47.9 53.7 56.2 51.9 Cotton Yarn 111.8 (1937) 3.7 (1945) 62.2 (Jan. 1952) 19.4 24.5 37.0 52.3 54.9 56.8 51.3 ','-!!an yarn 115.3 (1936) 10.3 (1945) 131.9 (Sept.1952) 18.1 27.0 53.2 83.9 112.2 116.7 119.5 Silk Yarn 113.0 (1939) 18.4 (1946) 52.2 (1948) 52,2 44.6 31.6 29.2 30.0 28.9 24.7 Fabrics 124.0 (193?) 13.1 (1946) 98M6 (Sept.1952) 27.3 37.0 58.4 79.6 93.5 96.3 92.6 Cotton Fabrics 124.1 (1937) 1.4 (1945) 62.6 (July 1951) 23.7 25.3 39.7 56.o 57.6 56.6 61.7 Rayon Staple Fabrics 2130.0 (1938) 52.7 (1945) 1134.0 (Aug. 1952) 109.5 157.4 465.9 717.5 1026.7 978.2 845.4 Silk Fabrics 167.4 (1942) 9.4 (1946) 64.2 (Nov. 1952) 31.2 35.9 34.6 41.6 51.1 58.8 39.7 Rayon Fabrics 143.6 (1937) 0.9 (1945) 75.5 (June 1952) 5.6 16.6 55.1 67.7 69.0 68.3 68.3 Woolen Fabrics 100.6 (1936) 1.8 (1945) 57.0 (Sept.1952) 8,1 10.9 25.1 36.5 47.9 49-5 51.1 CHEMICALS 156.8 (1939) 26.5 (1946) 150.8 (Oct. 1952) 48.6 67.2 98.9 124.6 136.0 142.4 136.9 paper and Allied Products 136.9 (1939) 22.0 (1946) 159.4 (Oct. 1952) 44.6 65.8 91.5 122.8 141.2 153.8 147.2 Chemical Fertilizer 144.3 (1941) 25.0 (1945) 243.0 (May 1952) 111.1 149.2 189.4 196.0 222.2 192.0 192.8 Industrial Chemicals 177.2 (1939) 32=4 (i9465 131.4 (Oct. 1952) 54.7 69.3 90.0 112.7 115.7 122.0 107.6 Chemical Textiles 211.3 (1939) 10.4 (1945) 175.7 (Nov. 1952) 28.1 50.1 98.6 43.1 156.4- 173.1 174zO 'OODS AND TO0ACCO 127.4 (1939) 36,9 (1945) 154.8 (Dec. 1952) 40.5 58.0 74.3 109.2 123.3 154.8 136.2 PRIiTING 114.8 (1937) 26.2 (1945) 133.9 (Dec. 1952) 35.2 38.2 44.8 5Z.7 96.8 138.9 123.1 t- - 12 - Table 3 Electric Powe:r iCaacit. Productioin and CongEE tion 1938 1940 1951 CanacitNr (rpilliona KWA/ 11ydro - Autho:rized 4.3 5.1 6.8 - Effective b/ 4.0 5.5 Thermal - Authlorized 3.3 3.9 4.0 - Available 2.9 3.0 Total - Autho:rized 7.6 9.0 10.8 - Effective and 6.9 8.5 Ava:ilable 9 Productior (billion K7H) Hydro 23.7 24.4 37.5 Thermal 8.9 10.2 10.2 Total 32.7 34.7 47.7 a_les2/ (billion KWH) Lighting 3.0 2.9 5.9 Othler 19.4 25.7 23.5 Total 22.4 28.6 29.5 a/ For 1940 and :L951 for the end of tle fiscal year, namely Mrch 31, 194:L and iiarch 31, 1952, respectively / Effecti-ve capacity at average stream flow. c/ By public uti:Lities only. The rather large difference between 9 total production of power and sales is attributable to the output of indus-trial power plants, transmission and distribution losses of public uti:Lities, unpaid consumption of nower by unMetred consumers and consumption by the power comianies. Power consumption has risen so rapidly that it has been necessary to ration po-wer in recent years. This has taken the forrn of penalty rates applicable to consumption in excess of desi Inated allocations, and also of uemporary interruptions of power supply durin, the winter months when peak demand coincides with low water supply and correspondingly low output of hydro power. Thus in December 1951 the -peak- load on public power plants had to be curtailed by 8,8% and in December 1952 peak power capabil-ity apparently fell about 19~' short of unrestricted peak deiiand. - 13 - 2. Coal The failure of coa' output to rise in accordance with industrial production has been a serious handicap to the econorcr. The tonnage mined reached 1934-36 levels only in 1950 and is still far below tlhe inmediate Table 4 Coal Output and Productivity Pr Man Proportion Monthly Output of Under- Total Percentage Per ground Workers Output Coking Coal Per Underground to Total Year (lOQI000 ) in OMtput Worker (in percent) 1934-36 (av.) 38,496 21.8 17.8 24.2 73 1940 56,313 21.1 1/4i.S' 20.3 73 1946 19,340 21.2 5.4. 9.7 55 1949 37,946 20.3 7.4 12.7 58 1950 38,459 18.6 8.4 14.1 61 1951 43,330 16.1 10.4. 16.5 63 1952 43,357 14.8 9.9' 15.4 64 prewar and wartime volume. Above all, output per worker lags far behind prewar productivity ev-en though it has improved markedly in recent years. In part this is a reflection of the relatively hig-h percentage of workers employed above ground. The low productivity and high cost of coal mining is attributable to a number of factors. Coal deposits were exploited rather recklessly during the war in order to get raxAmur.m outp-ut without much thought to tne futuLre. The quality of the coal seams which hlave had to be worked has steadily deteriorated and the distance of the coal face from pithead has continuously lengthened. With the end of the war Korean coal miners, who in 1944 constituted 51% of the underground working force, left the nines and had to be replaced with new workers who were less skilled and demanded higher wages and better working conditions. The working week was reduced and wages rose sharply. The number of hours spent by underground workers at the coal face was reduced by 30% and monthly wages in the mining industry were 332 times higher in 1952 than in 1934-36 while those in the manufactur- ingr industries rose only 253 times. The average price of coal (lump coal with a caloric value of ?000 ner kg.) rose from X 18.58 (G4.64) in Oct.-Dec. 1940 to v 6,107 (C$16.96) in Aori_-Sept. 1952. In the immediate rostwar years rehabilitation of the coal industry -proceeded slowly largely because of the poor financial condition of the mi.ning cormp-anies. In recent years, however, investr.e t in new equipment has been substantial and output has accordin_gly increased. Considerable numbers of mechanical loaLders, cutters and corveyors and large amounts of steel props have been installed; and through increased use of mechanical coal wzashing facilities, quality has been improved. hvach, however, remains to be done. 3. Iron and Steel Among the du-rable manufactures, the production of iron and steel has risen rapidly. In 1952 pr6duction of pig iron amounted to 3,474,300 metric tons, of steel, 6,988,200 tons, and of rolled products, 4,864,000 tons. These figures com-pare with a peak wartime output of 4.26, 7.65 and 4.8 mil- lion tons respectively. Output increased nlot only in response to large domestic dermnd of steel for postwar recons-truction in Japan, but; also, since 1949, to a rapid expansion in e2o:ort demand. Exports of primary and secondary steel products rose from 238,665 tons in 1949 to 653,283 tons in 1950, 974,536 tons in 1951 and 1,655,266 tons :in 1952. In the latter period the proportion of exports of primary rolle(d products and secondary steel products to the total output of rolled pr~oducts amounted to 345 as cormared with only 14.3% in 1950. In 1950, 1951 and 1952 exports of iron and steel products accounted for 9.9, 16.4 and 20.5% respectively of the total value of Japan's exports. The export boom was a reflection of the world-wide scarcity of steel ge.nerated by thle Korean war and the resulting rearmament eSfort. With a considerable amount of excess steel capacity at its disposal, Japall was able to expanid her output to meet thie growing demand and to charge high prices for her steel prod'ucts. Recently, however, botli derand anld nrices have been declining, and exnort prospects have become unfavorable. Because of her hirh cost of production Janan Is now finding it in- creasingly difficult to compete in the foreign market. Japan does not have the advantfage of cheap raw materials which account for such a large propor- tion of the total costf of steel. Her iron and steel industry developed in the ;oast largely as the result of deliberate government efforts to expand Sa-Than's w,ar potential. In 1929, for instance, total ingot steel production amounted to only 2.3 rillion tons. Both imported ancd dom-estic raw materials are hi;?h in cost corapared to those consumed by other leading steel producing countries. The freight charges on bulky imported materials are high. Alnost 40% of the coldng coal must be brought from such distant sources of suopply as India and the United States. In October 1952 freight still accounted for 57.5%o of the landed cost of American coking coal even though there had been a sharp drop in freight rates from the 1951 peaks. Moreover, Japanese coal henn corroared on the basis of caloric value was still higher in cost. On imnrorted iron ore, which accounted for about three quarters of the total requirement, freight accounted for about one third of the landed cost of supplies from the United States and the Philipjines in the Table 5 PRODUCTION OF I.)N 4DD 3TEEL ?PthSUCTS (lii m|tr±e ton) PIG 118) 7ay STE POS STM ?RUM0CTS IF0ROED STEYL CST STiEL ____ ~~~~ ~~~FERRO- Opn Thxa I I II Year For Stel FoALLS undry& T otal ALLOeSi rr Total wrdinay Special Total Ordinary |pecial Total z0rdinaz p a Total 1929 v.a. n.a. 1,087,128 25,309 2,238,19l 19 ,21 52,654 1,778 2,23,140 1,927,677 16,29 1,9146,206 38,450 z.a.a 38,450 ,49,224 A.A. 9,224 1936 n.e. n.9. 2s007,571 64 a68 4,900, 555 4504 316,1475 1,1483 5,223,017 4,264a253 85 339 4,W319,592 82,039 n.^. 82,039 116,461 r. 116, 81 191i3 3,694,P40 337,890 14,032,295 173,170 5,630o)?1 I 8 6 686,512 131 7,650,184 4,346,367 1463 j 06 18 609,573 189,585 293,146 1482,731 2'3,768 25,9J.3 279,711 1946 124 890 78,137 203 027 12,058 166,862 -_ 390,325 1 577,188 359, 05 49 426,254 19,2247 7,1473 26,720 65,287 5,416 7 7013 1949 1,143,51 405,126 l,54P,687 53, 509 2,425,059 77, 2t5 608,288 - 3,111,412 21141,395 78, % 220,081 148,660 13,353 62,013 100,873 10686 l11,559 1950 1,767,343 1465s,568 2j,232,911 65,931 3,891,152 194188 752,1483 - 14,836,522 3,1486,137 80,110 3s566,2147 57,589 16,333 73,922 9,,,928 16, 13 11,I I 1951 2,531,336 595,582 3,126,918 100Q9 5,3714,8 19549 91,455 - 6,01,649 4,739,082 124,995 L,904,077 75,284 21,358 96,642 125,378 22,373 147,751 s952 2,976,900 497,400 3,474,300 111,200 5,839,700 199, )O 9h9,000 _ 6,988,200 14,637,600 226,800 4,864,400o 62,100 29,200 91,300 128,100 28,800 156,900 c£APAetv y 6 o0853L90I 272,9030 9 ?920,640 149L,94C I3,832A1t |3.0 2. X? - 10,0 0An Surveyed As of gsch 1952 F capaity ftor slm-products - 16 - fall of 1952. (See Table 6.) Domestic ores are poor in quality and correspondingly high in price. Thus in 1952 raw materials accounted for 76.6% of the cost of pig iron after deducting the value of by-products. Table 6 Prices of Im=orted Coal and Iron Ore (in dollars per ton) June 1950 April 1952 Oct. 1952 Coal from United States - c.i.f. 17.70 a/ 29.91 25.24 freig:-t 17.96 14.51 india - c.i.f. 11.30 b/ 22.59 14.96 freight 15.14 7.35 China - c.i.f. 11.20 19.165 - freight 5.50 - Iron ore Hong Kong - c.i.f. 7.70 e/ 10.73 d/ 14.25 India - c.i.f. 9.40 c/ 22.89 19.8O freight 13.50 10.60 Philippines - c.i.f. 8.90 17.12 15.48 freight 7.59 5.11 United States - c.i.f. - 23.83 24.10 8/ freight 14.36 8.23 1halaya - c.i.f. 9.00 22.40 19.36 a/ Dec. 1950; b/ JullY 1950; c/ Aug. 1950; i/ Iarch 1952; e/ Aug. 1952. As compared with before the war, costs have been adversely affected by thze fact that nearby sources of bulkyr materials are no longer available. In 1936-38, for example, 90/O, of Janants coal imports and 2g'%, of her iron ore imports came from Korea, Formosa, Sakhalin, Manchuria and China. In addition about a thaird of her total requirer.:ents of pig iron was i1nnorted, which involved a much sr.,aller transport charge than if the pig iron had been imported in the fori.T of raw naterials. In recent years, on the other hand, virtually no pig iron has been im,porrted and supplies of iron ore and coal have had to come fromn much more distanit sources. In 1951, 24% of her im;ports of iron ore and 65% of her coal imports actually came from the United States anid Canade.. 1lJ In view of these factors itG is not surprising that pig iron sells in .apan for t,,75 per ton as compared with $54.50 per ton in the United States. ;L/ See Table 7. Statistics on the source of Japanese imports of coal and iron ore for 1952 are not yet available. Total imports of coal and coke were 3,355,356 metric tons in 1952, and of iron ore, 4,767,936 tons. Table 7 PRODUCTION AND IMPORTS OF IRON ORE AND COAL (in metric tons IRON ORE COAL SUPPLY SOURCE OF lMPORTS Imports Imports Domestic U.S. and Total from from Year Production Imports Total Nearby Canada Imports Nearby U.S. & Canada 1929 177,556 2,258,920 2,436,4706 1,264,437 - 3,634,000 3,0?f.OC _ 1936 620,449 4,022,846 4,643,295 1,494,711 - 6,360,100 5,453,300 - 1943 2,630,177 3,765,714 6,395,891 3,629,936 - 6,142,900 6,217,900 - 1946 555,998 555,998 - - _ _ 1949 760,994 1,549,538 2,310,532 285,913 311,522 1,612,323 33,261 1,493,291 1950 825,714 1,455,349 229g1,063 185,396 - 830,25D 590)429 75,107 1951 998,365 3,228,202 4,226,567 28,763 985,401 2,203,441 19,907 1,424,971 - 18 - With a rising rate of o.erations and some modernization of plant and technicues the efficiency of the Japanese iron and steel industry has improved in recent years. Thus the amount of coke used to make a ton of pig iron declined from 1224 kg. in the first half of 1948 to 869 kg. in the first half of 1951; and in t3he same period th-ie rolling yield in tlle prodtaction of steel bars increased from 85.1% to 93.0%. Beginning with the fiscal year 1951 the industry launched a three-year modernization prcgram costing X 62.8 billion, which was later increased to about X 90 billion to cover also thae cost of improving facilities for production of special steels. This program was designed to reduce the cost of pig iron by 4% and the cost of various types of rolled products by percentages ranging from 12% for steel billets to 30% for steel pipes. 2/ It is doubtful, however, that Japanese iron and steel products call ever be made fully competitive on the international narket under normal conditions. 4. .cneandEuLpMiit The production of machinery and equipment lhas risen considerably more than industrial output as a whole, primarily in response to the need for re-equipping industry and transport. The largest increases have taken place in the output of non-electrical machlinery and transport equipment, including ships. Production of electrical machinery has lagged behind because investment in the power industry has not been very large. 12/ S&.penditures under the original program were apportioned as follows: Pig iron Beneficiation and preparation of raw materials X 2.9 billion Modernization cf blast furnaces and coke ovens 6.3 " Other 2.2 " Sub-total 11.4 " Steel Repair and modeirnization of open-hearth furnaces 6.4 " Oxygen equipment for open-hearth furnaces and other facili.ties 2.1 " SuLb-total 8.5 .Rolling mills Modernization of blooming and slabbing mills 6.2 " Improved pipe manufacturing equipment 5.3 i Plate-rolling nill 2.0 Sheet manufacturing facilities such as continaous strip and reversible mills to replace present pull-over method of producing shieet 17.7 " Continuous rod rolling equipment 2.0 " Other equipment 0.9 - Sub-total 34.1 to All otlher equipment _ 8.8 It Grand Total X 62.8 billion In the fiscal year 1951, Y 22.8 billion were spent on this program; and for 1952 expenditu:'es of X 32.3 billion were projected. - 19 - In non-electrical machinery a phenomenal increase was registered in the production of sewing machilnes over hall' of which have been exported in recent years. On the other end of the sca:Le have been machine tools, the output of which has been only about a quarter of 1934-36 levels. The fact that Japan retained from the war a stock of metal-working tools far in excess of normal needs has depressed the market even t1hough mny of the existing tools are of obsolescent design. 33/ On the other hand, the manufacture of textile machinery reached an all-time high in 1951, thereafter declining sharply as the equipment programs of the domestic textile industry were completed and as the textile market went into a slump. In transport equipment the sharp increase in production during the last two years is primarily due to shipbuilding. The Japanese merchant fleet, including coastwise vessels, was reduced from over 6 miUlion gross tons in 1941 to about 1.3 million at the end of 1945. Owing to the importaince of the merchant marine to the balanice of international payments a construction program was launched in 1949 with the ultinate objective of having half of Japan's foreign trade carried in Japanese bottoms. By the end of 1952 the merchant marine had increased to 2.85 million tons. In 1951 Japanese yards Quilt about 450,000 gross tons of shipping of which 36,000 tons were for export; and in 1952 construction approximated 510,000 tons of which 23,000 torts were for export. _/ Recently there has been a sharp drop in new orders because of the decline in international freight rates. With the slackening of the post-Korean boom most branches of the machinery industry have faced increasing difficulty in reducing costs to a level which would make them competitive in the international market. Cost has been a particu:Larly critical problemi because Japan's hope of becoming more self-supporting is to a considerable extent dependert on a rapid expansion of' machinery exports. In 1951 and 1952 machinery and equipment, including vessels, accounted for only 7.8% and 10.9% respectively of the value of all exports. The proportion of exports to total units produced varies widely as indicated 4n tlhe following figures for 1951: steam locomotives, 78.6%; vessels (in terms of tonnage), 27%; sewing machines, 57.5%; cotton spinning maclhines, 5.1%; cotton weaving naclines, 12.5%; internal combustion engines (in terms of horsepower), 31.6%; D.C. and A.C. motors (i:n terms of horsenower;), 4.8%; bicycles, 16.6%; and automobiles, 2.8%. X,3/ At the beginning of 1952 Japan's stoc'- of machine tools was estirated at 560,000 units compared to a normal requirement of about 250,000. Postwar production has consisted largely of small bench-drilling machines, bench lathes and si.mall single-purpose lathes. ~/ In 1950 the tonnage of ships built for ex=ort was 82,620. - 20 - Two factors handicap the export of machinery: one, the high cost and poor quality of iron and steel; the other, backwardness in technology. As a general average the cost of iron and steel represents about 30% of the cost of machinery, 14,/ and manufacturers claim that the poor quality of Japanese iron and steel increases the amount of materials which nust be re'ected or reprocessed and necessitates thie construction of machinery which is nuch heavier than corresponding types built in other countries. In sone fields such as textile machinery and sewing machines Japanese techno-logy is, on the whole, up-to-date, but i.n other fields, including rmachine tools and thermal. generating equipment, it has lagged behind that of competing countries. The situation of the shipbuilding industry exemplifies the problem faced by the industry as a whole. As of the f'all of 1952 Japanese ship- builders were paying -Y 5'5,000 per ton for ship plates as compared with about X 30,000 paid by competing European builders. The cost of construc- tion of a dry-cargo vessel and a tanker wzas about 20% and 10% higher respectively than that in European yards. In recent years Japanese ship- builders were able to buLild a considerable tonnage for foreign account, but only because foreign yards were being used to capacity and Japanese builders could offer more rapid delivery. INow, however, the Japanese yards no longer have this advantage. 5. Chemicals Among chemicals, the largest increases in production have been registered by fertilizer:,i particularly amnmonium sulphate. Among the basic inidustrial chemicals the output of dyestuffs has lagged considerably behind prewar levels, while the production of alkalis, after exceeding 1934-36 averages in 1951, dropped again below prewar in 1952. Nearly all of the chlemical producticn has been for tlhe domestic market. For ammonium sulphate, dyestuaffs and calcium cyanamide the percentage of the output exoorted in 1951 was 11.2, 9.0 and 5.3 respectively, 16J/ but for pharmaceuticals, caustic soda and soda ash it was only 2.5, 1.8 and 0.7. i2/ The percentage varies widely as the folloing figuires supplied by the m.achinery industry indicate: lathes, 14.2%; textile machinery, 200%; ships, 22%; boilers, 32%; thermial generating equipment, 38%. 16/ In 1952 the proportion of anwionium sulphate exported rose to 13%, but exports of calcium cyanamide were negligible. - 21 - Table 8 ProduLction of Prinicipal Chemnicals (in metric tons - Anmonium Calcium Calcium Synthetic Soda Ash Caustic Soda Sulphate 'de Surphospate Dyestuffs esins 1936-40 237,459 368,873 1,006,600 268,400 1,470,800 23,420 3,950 1950 182,211 227,316 1,519,600 462,200 1,389,700 9,000 17,300 1951 223,945 321,890 1,593,700 392,000 1,425,900 14,100 30,200 1952 200,800 268,400 l,955*228 525,780 1,355,304 13,944 n.a. Chemicals are another group of products which Japan hopes to export in increasing measure. rn the last few years, however, they have contri- buted only about 2% of t:he total value of exports. Like steel and machinery, chemicals have difficulty in competing in the foreign market, largely because of the high cost of raw materials, but in part also because of the technical backwardness. The technical lag has affected only certain branches of the industry, such as those concerned with some pharmaceuticals, particularly antibiotics, synthietic resins and, in general, products of organic synthesis. The comparatively high cost of raw materials, however, adversely affects the greater part of the industry. The high cost of coking coal and coke-oven by-pz'oducts, significantly increases the cost of producing pharmaceuticals, dyestuffs and certain resins. Two of the basic cl.hemicals used iidely in the chemical industry - sulphuric acid and alkalis - cost about twice as much as in the Tunited States. The alkali industry, for instance, has to rely on imported salt which at the end of 1952 cost $l2 per ton as compared with a price of f,l or less paid by the American chlemical industry. Sulphuric acid is }ade from domestic pyrites which, -partly because of the exhaustion of the better deposits, is expensive to mine. Coal, widely used. both as a fuel and raw material in the chenmical industry, has boen relatively e-=,ensive. Coal, for instance, accounted in 1952 for approxirimately 30% of the cost of calcium cyanarnide. 6. Consumers Goods - Textiles In the field of consumers goods tihe record of postwar production is spotty. In certain relatively new indlustries such as the production of optica'l goods anid instrn.unents Japan has forged ahead with phenomenal rapidity. Ilere Japan has demonstrated h-er abilit-y to adop't advanced techniques and to prod-uce articles of the highest quality. In 1950 and 1951 abouLt half of the output of carieras, binoculars and other optical Ioods ancl instruments weire exported, and. in 1952 ou-tpu and exports con- tinued to rise. Prornising as this developmmnt has been, it could not remotely offset, however, the continued postwar lag, in the -production and ex:port of textiles wlich have alwrays occupied an extretaely important position in the Japanese econo=;y. - 22_ The output of varLous types of textile yarns and fabrics is given in f2able 9. In physical volLue total production in 1952 Was only a little over 624 of the average in 1935-37. 'The outpunt of silk wras still the lowest in relation to prewar. iOotton textiles, which accoiunt for well over half of the total volume, were produced in slightly more than half the prewlar amount. The wioolen industry, which is relatively r,uch less important, has done somewhat better. Rayon is the only textile which has approximated the prewar volume of output, priy.mrily because of the very large increase in stanle fiber production. The production of synthetic fibers (other than rayon) is a nostwar development, but the 1952 output of about 6,000 tons was relatively insignificant. Capacity hlas not been a limiting factor. In thie cottoni textile industr,y the number of spindles was reduced by war darmage and compulsory scrapping from a prewar peak of 12,776,220 to only 2,005,052 at the end of the war.r The number of operable looms and available capacity for bleaching, dyeing and printing had also drastically declined by the end of the war. In the last three years, however, the industry has re-equiypped itself on a considerable scale, so that the nber of spindles by the end of 1952 reached about 7.5 million and the number of looms was only about 20%o below the prewar peak, Operations in 1952 were well below capacity. In the rayon industry, too, the increase in capacity has more than kept pace with production. Table 2 Produiction of Textile Yarns and Fabrics 1935-1932 Av._ 194.6 1951 19522 Out-out Index Out&ut Index out t I Ntaut Index Yarn (1000 lbs.) Cotton 1,44,599 100 128,919 8.7 711,715 47.9 778,520 52.4 Silk (Raw) 93,818 100 12,433 13.2 28,415 30.3 33,883 36.1 Rayon tilament) 279,790 100 9,028 3.2 137,937 49.3 342X196 50.1 Staple Fiber 78,323 10C 20,624 26.3 230,824 294.7 262,196 334.8 Wool 145,192 lOC 28,186 19.4 112,876 77.7 150,979 82.9 Total 2,081,722 100 199,190 9.5 1,220,767 58.5 1,367,774 65.7 Fabrics (1000 sq.yds.) Cotton 4,144,704 100 241,698 5.8 2,179,408 52.7 2,238,410 54.0 Silk 378,911 l00 46,667 12.3 158,462 41.8 194,395 51.3 Rayon amnent) 897,754 10() 42,156 4.7 487,380 53.6 498,826 55.6 Staple Fiber 131,164 100 30,284 23.1 322,437 245.1 462,874 352.9 Wool 306,361l 100 . o8 4. W ool__) ~~~~~~2.1,139= 9 1:0297 37. 151L,038i4. Total 5,855,894 100 381,744 6.5 3,257,984 55.6 3,665,54.3 62.6 Pcoduction of Synthetic Fibers (IMietric Tons) i 19L 1 952 9) Polyvinyl (Vinylon) 540 4,032 5,304 7,000 Polyamide (Hylon) 96 468 864 3,100 - 23 - The coriparatively low level of textile production has been primarily due to a contraction in the foreign market, although -the slow recovery of donestic consumption has also been a factor until recently. The cotton, rayon and silk industries have always been heavily dependent on exports. As Table 10 indicates, 76,% of cotton fabrics, 58% of rayon fabrics and 72% of rav$ silk were exported in prewar years. The woolen industry was much less depenident on exports. In 1952 the yardage of cotton fabrics exported was only 26% of prewvar arid that of rayon fabrics approximately half. Raw silkl exports were less than 14% of the prewar volume. Table 10 Volu= of Textile Exoorts and Percentage of Outout Ex.ported 9 1935-37 1946 1951 1952 _Volume *i Volume f Volume Volume .f Rayon Yarn (1000 lbs.) Rayon filament 47,774) 15 3,001) 1 17,039) 10 ll,.056d/) 2 Rayon staple 4,924) - ) 20,437) 3,0*5d/) Spun rayon 2,725 7 - l0,892 7 15,776d/; 6 Fabrics (1000 sq.yds) Filament 574,)2l) 58 232,110) 60 176,343t/) 31 Spun rayon 25,736) - 60,658) 70,058/) Cotton Yarn (1000 lbs.) 52,870a/ 4 3,359 3 2S,114 4 29,552 4 Fabrics (1000 sq.yds) 2,95,45000a/ 76 1,964 1 1,094,503 52 760,955 34 . Wool Yarn (1000 lbs.) 6,998a/ 5 - 1,075 1 n.a. n.a. Fabrics (1000 sq.,yds) 39,o00a/ 12 - 1,237b/ 1 n.m. n.a. Silk Raw silk (1000 lbs.) 67,1637 72 l1,40 9:l 9,026 32 9,264 27 Fabrics (1000 sq.yds) 124,769 33 900c/ ;2 40,333,/25 31,542 16 a/ 1934-36. b/ 9 rillion, including special procurement. c/ Thousands of linear yrards. d/ 10 months. - 24 - The principal factors responsible for the low volume of exports have been (1) the marked contraction in world exports of cotton textiles and silk, and (2) a declLne in the Japanese share in the world narket for cotton and rayon textiles. A gradual contrac-tion in world cotton textile exports has beeni discernible since the fi:rst world war. Over the last four decades the tendency of importing comntries to become more self-sufficient has been the iprincipal cause of t:ris develop.,wnt. Since the second world war, however, the failure of many countries to recover their prewar living standards has also been a factor of importance. 17 World exports of cotton textiles were only 5 billion and 5.5 billion square yards in 1950 and 1951 respectively as comnared with 7.2 billion in 1937. As far as silk is concerned, the most important factor has been tre competition of synthetic fibers. Japan's share in world cotton textile exports declined fron 36.7% in 1937 to onlyr 19.7% it 1951. As Table 11 shows, both the United States and India gained at the expense of Ja-oan ancl the United Kingdom. Tiile the rorld trade in rayorL (staple fiber, yarn and fabrics) increased from 439 nillion pounds in 1937-38 to 9OS million in 1951, Japan's share of this trade fell from 42%, to 11%. In the export of rayon piece goods Japan's share drormed 'rom 62% to 17%. Italy and the Netherlands have meanwhile captured a much larger sihare of the world rayon maerket (42% and 27% res-oectively). 17/ The All Japan Cotton Spinners Association has pointed out (Causes of Declin-e in the World Is Cotton Textile Trade, Osaka, August 192 that in the poorer agricultural countries of the world, principally those in Asia and Africa, ner capita cotton textile consumption dropped from 7.8 yards in 1936-38 to 5.6 yards in 1950. The imports of this group of countries declined from 5,107 million yards to 3,354 million or by 1,753 millicn yards while their output increased by only 442 million. Statistics compiled by FAO indicate that per capita consumption of the: principal textile fibers (cotton, wool and rayon) in Asia was 1.7 kg. in 1951 as compared. with 2.2 kg. in 1938. - 25 - Table 11 World orts of Cotton Fabrics (in mirllions of yJa, 1937 _1950 _1l951 Exporting % of % of % of 1952 Country Quantit: Total Total u Total nti _~~~~~~~~~~1 :tt ___ __ Japan 2,643.6 36.7 1,064.5 19.4 1,086.3 19.8 760.9 U.K 1,921.9 26.7 822.4 15.0 865.2 15.7 710 a/ U.S.A. 226.8 3.1 559.6 10.2 807.2 14.7 750 a/ India 221.0 3.1 1,108.8 20.2 743.9 13.5 600 i/ Italy 448.0 6.2 338.1 6.1 381.2 6.9 n.a. Belgium 170.0 2.4 229.3 [,.2 246.0 4.5 n.a. France 349.6 4.8 391.8 7'.1 401.4 7.3 n.a. iNetherlands 227.2 3.1 153.6 2.8 176.6 3.2 n.a. Gerrmany 212.7 3.0 127.1 2.3 232.5 4.2 n.a. Spain 32.8 0.5 140.8 2.6 128.9 2.3 n.a. Others 746.2 10.4 563.7 10.1 430.8 7.9 n.a. Total 7,200.0 100.0 5,499.7 100.0 5,500.0 100.0 n.a. _/ Estimate Despite the above figures, it cannot be said that Japanese textiles have generally ceased tD be competitive. In cotton textiles Japan undoubtedly does not have as marked a competitive advantage as before tlhe war. Wages in textile industry, for example, are apparently no longer as low in relation to other countries as before the war. Real monthly wages in spinning and weaving plants rose on the average 56% from 1934-36 to 1952 anid in terms of dollar equivalents they rose by 260%. 18/ Mbreover, in low quality textiles (i.e. textiles of low counts) India has definitely tended to undersell Japan, partly because the Indian government has kept the price of domestically produced cotton sold to Indian mills relatively low. The principal fEctors responsible for the decline in the Japanese share of the world marlet appear to have been the following: .. (1) Other countries obtained a headstart over the Japanese in regaining the market. For a long time after 'the war foreign trade trans- actions were exclusive]y in the hands of SCAP. Only in recent years have 18/ The average monthly wage in 1934-36 was XY 21.81 or $6.32 at the exchange rate prevailing at that time; in 1952 the average wage was X 8,197 or $22.77 at t'.he current exchange rate. - 26 - the Japanese been permitted to have their own trade representation abroad and in a few co-antries Janan is still not allowed to have oernanent trade representatives. The "deconcentration" of a few powerful Japanese foreign trade firms into a large number of firms, each with inadequate fin-ancial resources, has also hindered the promotion of exports. (2) A very large part of Japanese cotton textile exports has goone to the relatively poor Asiatic countries whose per capita textile consumption has remained below prewar levels. For example, Indonesia's inports from Japan, the United Kingdom, the United States and India dropped from 496.4 million yards in 1937 to 343.9 million yards in 1951, and her imports from Japan declined from 434.4 mdllion to 233.7 million. (3) The loss of the Chinese marlket forced Japan to seek otlher outlets which were not easy to find. In 1934-36 China imported from Japan on the average 329 mi17ion yards of cotton cloth or 12.3% of Japan's exiorts. (4) Japan has suffered severely from discriminatory trade restric- tions, particularly in the sterling area where she normally markets the bulk of her cotton textile e:norts. Trade restrictions have also affected her market in Indonesia.. The drop in textile exports has been the most important cause of the overall contraction of Japan's export trade. In 1934,36 textile goods, including raw silk, accounted for 52.1%o of the total value of Japants exports. Cotton yarn and cotton cloth alone represenited 17.7% and raw silk and silk manufactures 13.4% of the totaL exports. In 1951 and 1952 textile materials still constituted 44% and :36.9%, respectively, of the value of all exports, but export vrolume as a whole was only about 30% of Table 12 Percentage of Textiles in Total Exports Item 29 0 1951 Total exports 100 100 100 (928,360) (820,187) (1,354,520) Total, textiles 52.1 48.7 44.0 (483,400) (399,331) (595,600) Cotton yarn 1.2 2.0 2.4 Cotton cloth 16.5 25.2 23.0 PRyon yarn 0.8 0.6 1.8 Rayon fabrics 4.1 6.1 6.4 Woolen yarn 0.4 0.2 0.3 Woolen fabrics 1.5 0.5 0.3 Raw silk 11.1 4.8 3.1 Silk nanufactures 2.3 2.7 1.5 Others 14.2 6.6 5.2 the average in 1934-36,. The fact that textiles constitute still such a large share of exports epitomizes the difficulty which Japan has had in replacing shrinring textile sales with those of other products. - 27 - Construction A large vo=ue of construction has taken place in postwar years to make good the tremendous damage inflicted during the war. Today there is little or no visible evidlence of the wartime destruction. The number of new office buildings, ra:ilway stations, cinenas, night clubs and other corrercial struLtures erected in all the major cities is very impressive; and many of these have b3efl erected on a scale ani in a style far more lavish than in the past. About 3,016,000 housing units were constructed in the period 1945-51. Table 13 knthJl Av,ra,7e of Buildii Units Started in Terms of Floor Ar7a tsubo) a/ Dwellings All Buildings Floor Area of Units Actually Reinforced Steel Units Begun Constructed Year Total Wooden Concrete Frame Others (lonthlZ averae) (Annual Total) 1946 645y358g/ n.a. nua. n.a. n.a. 3843775]/ 459,300 1947 638,651 n.a. n.a. n.a. n.a. 413,664 626,100 1948 955,901 n.a. noa. n.a. n.a. 581,003 740,900 1949 799,535 n.a. n.a. n.a. n.a. 451,983 370,100 1950 914,542 829,011.2/ 45, 597a/ 2l,987c/ 2,977p'/ 474,070 337,300 1951 815,405 719,703 68,586 23,776 3,340 396,907 246,300 1952 853,375 769,440 54,486 20,895 5,584 439975 n.a. a/ One tsubo - 3.954 square yards b/ Average August-December _/ Average April-December. The number of dv'elling units erected since the war almost equals the estimated shortage of 2.8 million units estimated to have existed in 1945 as the result of damage; and destruction and the wartime lag in construction. As of April 1952, howevaer, the shortage was still officially estimated at 3.16 million largely because of the continued growth of the population. 12/ 19/ About 320,000 dwelling units are needed annually simply to meet the housing demand ar:ising from an increase in farilies. In April 1952, 1,159,400 families3 were said to be living "doubled up" with other families or in houses not built as dwellings; 834,000 were living in excessively small units; and 1,163,000 were reported living in superannuated dwellings. - 28 - Postwar construction created a boom in the construction materials industry. Thus the produiction of cement in 1952 reached 7,095,742 tons or 55% above the 1934-36 average; and the output of sheet glass - 5.4 m,l- lion cases - was 57% abovre prewar levels. Reference has already been made to the effect of buL lding on lumber and steel production. - 29 - III. FINANCE The remarkable recovery of production which has taken place in postwar years was made possible partly by the existence of considerable idle capacity and partly by additional investment. The available data on Japanese national accounts and the components in these accounts are not altogether reliable, but they furnish a very rough yardstick of the extent of postwar investment. As Table 14 indicates the volume of in- vestment increased gradually, and with the progressive rise in the total national product a large:r proportion of the gross national product went into investment. By the fiscal year 1950 gross investment had reached about 22% of GNP and in the calendar year 195:L it may have been as high as 28.5%. Gross private investment in relation to GNP has risen much more rapidly, amounting to an average of 20 '% in the last few years as compared with an average of perhaps around 10% in the years 1946-1948 inclusive. Miuch of the increase in recent years, however, has been due to the very rapid accumulation of inventories which attended the produc- tion boom generated by the Korean war. The availability of excess capacity has kept investment in plant and equipment relatively modest. In the years 1946 to 19Z48 such investment amounted to a little less than 5% of GIT, and in the last few years it has risen to about 8%6 of GNP. While there is still a substantial amoLtnt of idle manufacturing capacity at present levels of production, the progressive obsolescence of industrial equipment has left a substantial backlog of investment requirements. The Shortage of Capital Investment in postwar years has been difficult owing to a chronic shortage of capital. Although voluntary savings have increased sharply in recent years, 2Q/ they have generally fallen far short of require- ments. The deficit has been made good partly by inflationary financing and partly by compulsory savings effected through the government. The chronic shortage of capital is clearly evident from an exari- nation of the sources cif funds supplied to industry both for working capital and for purchase of plant and equipment. Table 15 shows that private banking institiutions, which means primarily the regular commer- cial banks, have generally supplied well over 60% of the capital re- quired by industry in the postwar period. This fact is even more strik- ing when it is consider'ed that such banks supplied 21.7%, 8.5%, 10.9%, 18.5%, 25.3% and 16.6% of the capital required for the purchase of equip- ment in the fiscal years 1946, 1947, 1948, 1949, 1950 and 1951 respectively. Q There are no reliable statistics on such voluntary savings. Such figures as are available (see Annex 1) would indicate that by 1951 voluntary savings in real terms were close to 90% of the average amount in 1934-36. Table 14 JAPAN: GROSS NAVIONAL EXPENDITURES BY FISCAL YEARS (in billions of Yen) 1934-36 a/ Average 1946 1947 1948 1949 1950 1951 a/ 1952 i Gross National Expenditures 16.3 389.1 1159.8 2429.8 3408.5 3871.1 5015.3 6023.0 Net Investment Abroad 0.4 -14.3 -68.2 -97.9 -114.1 56.4 6u.5 54-. Gross National Product 16.7 374.8 1091.6 2331.9 3294.4 3927.5 5075.8 6077.0 Gross Private Expenditares 13.7 317.3 955.9 1938.0 2843.6 3218.8 4184.2 4829.0 Consumption 11.2 269.1 856.0 1686.5 2398.9 2533.3 3018.6 3615.0 Investment 2.5 48.2 99.9 251.5 444.7 685.5 1165.6 1214.0 C Housing 1.2 24.2 56.6 109.3 33.0 39.6 48.2 104.0 Plant and Equipment 1 18.1 46.3 113.2 184.9 297.9 448.2 456.o Inventories )13 5.9 -3.0 29.0 226.8 348.0 669.2 654.0 Gross Public Expenditures 2.6 86.1 272.1 589.7 679.0 652.3 831.1 1194.0 Consumption n.a. 64.6 171.6 371.1 419.0 458.1 552.3 832.0 Investment n.a. 21.5 100.5 218.6 260.0 194.2 278.8 362.0 Proportion of Total Investment to GNP n.a. 0.181 0.19 0.20 0.214 0.223 0.285 0.26 Propot-tion of Private Investment to GOP 0.15 0.129 0.092 0.108 0.135 0.175 0.23 0.20 Propor.tion of Private Investment in Plant an,d Equipment to GNP n.a. 0.048 0.043 0.049 0.056 0.076 0.088 0.075 Cailendar year #/ Est.imate as of November 1952 Table 15 SUPPLY OF FUNDS TO INDUSTRY BY FISCAL YEARS (in billions of yen) 1946 19147 1948 19149 1950 1951 1952 (est.) Source 3 Aiiout Amount % Amount % Amoun Amou r Amount % Amount % I. Industry's Own Funds 1.6 2.3 3.5 3.7 13.1 3.5 70.6 13.9 135.2 18.5 261.0 24.7 272.0 21.4 a. Retained piufits 0.4 0.6 - - 6.0 1.6 36.3 7.1 84.0 11.5 149.0 14.1 156.0 12.3 b. Depreciation 1.2 1.7 3.5 3.7 7.1 1.9 34.3 6.8 51.2 7.0 112.0 10.6 116.0 9.1 II. Issue of Shares 3.0 4.2 9.4 10,1 53.4 14.1 74.8 14.7 35.9 4.9 72.8 6.9 110.0 8.7 III. Issue of Debentures 0.7 1.0 0.4 0.4 0.8 0.1 26.7 5.3 42.3 5.8 34.0 3.2 42.0 3.3 IV. Government Funds 6.4 9.1 54.2 58.0 76.2 20.1 0.2 0.0 11.8 1.6 78.8 7.4 111.7 8.8 a. U.S. Aid Counterpart Fund - - - - - - 24.6 4.8 28.6 3.9 46.6 4.4 31.6 2.5 b. Trust Fund Bureau - - - - - - - - - - 0.8 0.1 13.5 1.1 c. Special Account to Finance -'. Settlers 0.4 0.6 0.8 0.9 3.7 1.0 1.5 0.3 1.2 0.2 1.4 0.1 ) d. Special Account for Agri- ) 20.5 1.6 culture, Forestry & Fisheries - - - - - - - - - - 12.0 1.1 ) e. Reconversion Finance Bank 6.0 8.5 53.4 57.1 72.5 19.1 -25.9 -5.1 -19.0 -2.6 -11.3 -1.1 f. Development Bank - - - - - - - - - - 23.4 2.2 39.1 3.1 g. Export & Import Bank - - - - _ _ _ 1.0 0.1 5.9 o.6 7.0 o.6 V. Private Banking Institutions 58.7 83.4 26.0 27.8 236.3 62.2 335.8 66.1 357.7 49.0 700.1 66.1 723.4 57.0 VI. Bank of Japan Foreign Exchange Loans - - - - - - - - 147.2 20.2 -88.1 8.3 11.0 0.9 Total 70.4 100 93.5 100 379.8 100 508.1 100 730.1 100 1,058.6 100 1,270.1 100 - 32 - The government, too, was an important supplier of funds to industry, particularly in 1947 and, 1948. In these years the government injected funds into the econony through its Reconversion Finance Bank which be- came a potent factor for inflation. WTith the inauguration of the financial stabilization program in 1949 this institution was abolished, and until 1951, when the Development Bank began functioning, the govern- ment was a relatively irLsignificant supplier of industrial funds. Another characteristic f'eature of the supply of capital was the unim- portant role played by eielf-financing. Only in the years beginning with 1949 was there a substantial increase ir. self-financing, partly because government policy permitted larger allocations for depreciation and partly because corpcirate earnings rose rapidly. Finally, it should be noted that the flotation of debentures accournted for only a very small part of the funds raised by industry. The percentage of funds raised through debentures increased significantly following the adoption of the financial stabilization program but has remained relatively small. In the following section each of these: sources of industrial funds will be analyzed in some, detail. Self-Financing The extent to which corporations have had to rely on borrowing in the postwar period is inidicated by their balance sheets. Thus the balance sheets of principal companies for the second half of 1951 show that only 37.9% of their total capital resources represented their own capital -- i.e. equity capital and reserves. The remainder was borrow- ed and as much as 48% was borrowed on short-term. By contrast, the statements of companies available for the prewar period September 1936 to February 1937 reveal that 61% of their capital resources consisted of paid-in equity capital and reserves and only 20% vere derived from short-term liabilities. Although the amount of reinvested profits and provision for depreciation has increased substantially in recent years, these two sources accounted for onaly 24% of the total funds raised by principal corporations in the fir-at half of 1950 and of 1951, as compared with an average of 45% in the years 1934-36. The small extent of self-financing in Japan is made more striking by the following comparative tabulation of the sources of industrial financing in Japan, the United Kingdom and the United States for thae year 1951: Table 16 Solurces of Industrial Financig by Percentage j;ijxn TSU.S. U.K. Internal Funds 18 43 42 Depreciation 6 22 14 Retained pro fits 12 20 28 - 33 - Table 16 Sources of 'Industrial Financing by Percentage Japan U.S. U. K. Internal Funds 18 43 42 Depreciation 6 22 14 Retained profits 12 20 28 External Funds 82 57 57 Bank Loans 34 9 2 Short-term 23 _ Long-term 11 - - Reserve for Payables 39 33 45 Net New Issues of Stocks 4 6 7 Bonds 5 9 2 Self-financing by business has been severely restricted by high corporate taxes and the low valuation of depreciable assets for tax purposes. Th.e aggregate rate of national and local corporate income taxes, for example, is 59.25% today. g2 Moreover, in levying these taxes no distinction has been made between profits paid out in divi- dends ard those re-invested. Despite the postwar inflation which raised wholesale prices to 228 times the 1934-36 level by the end of 1949, cor- porations were not permitted to revalue their assets as the basis for determining tax-free depreciation allowances until 1950. In that year, and again in 1951, corporations were allowed to revalue their assets within certain limits. Only 32,066 out of some 260,000 corpor- ations took advantage of' the opportunity, although these included nearly all of the principal corporations. The average revaluation, moreover, was only 70% cf the legal limit. 22/ This relatively poor result was due partly to the fact that the government levied a 6% tax on the increase in book value and partly to a. fear by corporations that they would be unalble to show an adequate profit after setting aside depreciation allowances on the basis of a much higher book value. S/ These include the national corporation tax (1+2% of earnings,) the prefectural enterprise tax (12% of earnings) and the municipal "inhabitant's tax" (12.5% of the corporation tax or 5.25% of earn- ings). S/ The book value of corporations which revalued increased from 129.1 billion yen to 582,.4 billion as against a legal limit of 829.7 billion. - 34 - In recent years the profit rate on equity capital, including reserves as well as paid-in capital, has been fairly high. It amounted to 34.2% for the second half of 1950 and declined to 11.24% in the second half of 1951 apparently because of the increase in accumulated reserves, particularly revaluation reserves. The need for funds forced most corporations to reinvest a considerable proportion of their profits even though the corporate income tax did not encourage the retention of profits. The percentage reinvested amounted to 67,80,77 and 63 respectively in the first and second halves of 1950 and the first and second halves of 1951. 2/ Despite the rev%luation of corporate assets, depreciation allow- ances have generally remiained inadequate. IrL 1936, for instance, cor- porations set aside about 6% of their total disbursements for depre- ciation. In the second half Qf4950 provision for depreciation amounted to only 1.9% of disbursements/in the second half of 1951 it was 2.3%. It is generally conceded in Japan that depreciation allowances are in- sufficient by comparisoni ith prewar even aft,er taking into account that the turnover ratio of fixed assets was 3.0 in the last half CV1951 as contrasted with 0.77 in 1936-37. Stock and Bond Issues As is indicated :in Table 17, new issues of stocks and bonds have generally accounted for only about 10% of the stpply of funds to industry. Only in the years 1948 and 1949 was the percentage higher. There is no official control or 'Limitation over the amount of security issues, but marketing conditvions have been the limiting factor. In the immediate postwar years rapidly spiraling inflation pre- vented the flotation of any significant amount of bonds. When the financial stabilization program was adopted in 1949 conditions became more favorable but the fear of renewed inflation together with the limited availabilitr of capital kept the increase in bond flotations within rather modest limits. Moreover, it has been impossible to issue bonds with a maturity of more than 3 to 5 years or at a price which would reduce the yield below 8.5% to 9)%,. Nearly all of the privately subscribed bonds have been absorbed by the banking system. 2/ Although Japan has a well-developed stock market with active trading in shares, 2/ the proportion of industrial funds raised by stock issues has remaired disappointingly small - about 5% in the fiscal year 1950 and 7% in 1951. Corporations have generally preferred S/ This reduced the dividend rate in total equity capital to 3.6%, 6.3%, 3.9% and 3.93% for the periods indicated. However, the rate on paid-in capital. was mutch higher - 13%, 21.8%, 25.8% and 24.1%. 22/ Of total issues anounting to 167.5 billion in the 2-year period ending June 30, 1952, all but 19.5% was subscribed by banks. 22/ Stockownership is surprisingly widespread in Japan. Individual owners accounted f'or 56.48% of the total value of outstanding tddck. - 35 - to raise their money by borrowing, principally from the banks, because the interest rate on borrowing is substantially lower than the vir- tually fixed dividend rate which stockholders insist that companies pay on their shares. Companies cannot issue new shares except on a basis generally entitling existing stockholders to buy one share at par value for every share already owned. ay Since the dividend rate is around 20% of the par value, the cost of new money raised in this way is rather high compared to bank borrowing at 10o. Moreover, the taxes and formali- ties involved in the issue of new shares impose on the companies ex- penditures of between 57 and 10% of the face value of the shares. Financing b.y Banks The banks have been the principal source of industrial financ- ing, The general resort to banks not only for working capital but also for financing equipment has resulted in a situation generally character- ized as "ov,erlending". Whereas loans and discounts generally amounted to about 60% of deposit.s before the war, the ratio since the war has increased almost without interruption so that in the last three years it has been close to and occasionally in excess of lo1%. Nearly all of this financing has been done by ordinary commercial banks. Under the occupation the three special banks which concentrated on long-term lending were converted by order of SCAP into regular com- mercial banks. Institutions to provide ecjuimirent capital or long-term working capital were re-established, however, by the Long-Term Credit Law of June 12, 1952. Under the terms of this law the existing Indus- trial Bank again became a long-term credit bank and a new Long-Term Credit Bank of Japan was established in December 1952. These banks are aunthorized to issue debentures and to make long-term loans and acquire securities. Since they largely depend on the flotation of bonds for their lending resources and the market for such bonds is very limited, it can hardly be expected that they will be able to take over much of the essentially long-term financing which has been done by the commercial banks. This is indicated by3 the fact that government funds had to subscribe a third of the capital of g 2.25 billion of the Long-Term Credit Bank and also half of its initial bond issue of * 2 billion. 2/ One of the factors stimulating the stockmarket boom which developed in 1952 was apparently the anticipation of new issues by stock- holders who bid up share prices in order to be able to buy at par value new shares which had a much higher market value. Thus by the end of 1952 the annual yield of stocks based on mark.et quotations had sunk. to less than 7%. - 36 - Table, 17 ncipalAssets and Liabilities of All Banks 7; 1 eion s of Yen) Assets Liabilities Propor- :tion of :Loans & Deposits Cash : Capital :Discoun6 Loans & Call with Bills & Paid- De- Borrow- :to De- End Discounts Loans Others Securities Checks: In osits ing pits 1936 9,505 511 559 7,039 727:1,568 13,968 1,207 : 0.68 1940 18,371 724 862 14,948 1,915: 1,521 31,190 972 : 0.59 1946 146,407 2,376 10,829 58,900 10,979: ,420 144,869 43,674 : 1.01 1948 381,348 4,155 24,311 117,033 72,660!ff4,729 505,349 55,875 : 0.75 1949 679,052 5,206 28,411 106,146 121,156 d.6,170 792,018 90,727 : 0.86 1950 994,7z46 2,396 21,621 134,596 18.865 2.9,131 1,048,564 147,191 : 0.95 1951 1,517,813 8,563 32,862 175,926 181,171 p25,763 1,506,308 220,102 : 1.01 1952 2,128,022 16,994 38,918 236,054 335,234 '9,545 2,223,820 238,676 : 0.96 arch 1952 1,640,629 17,156 26,253 184,489 256,107 p!6,923 1,675,859 225,845 : 0.98 Mrch 1953 2,261.377 12,885 3I,94z6 2_5504 35O,771 iB9.74,0 2.333,328 298,698 0.97 The demand for capital has made it difficu1t to impose any curbs on bank lending. There has been no requirement that the banks maintain a definite cash reserve against deposits or keep reserves on deposit at the central bank, the Bank of Japan. The latter, of course, can control credit through such means as the sale or purchase of bonds, the interest rate it charges on loans and the determination of collateral eligible for 0 rediscount. While the Bank of Japan does not limit the total volume of credit to its customlers, it does establish for each of its customers a credit line divided into basic, primary and secondary portions. The first two are limited in amount, and t;o each of these portions success- ively higher interest rates apply. During the last three years interest rates on the basic and primary portions were raised only once, namely on October 15, 1951, bu.t rates on the secondary portion were raised on December 1, 1950 and March 20, 1951, as well as on October 15, 1951. AS of the latter date inteprest rates applicable to the basic portion ranged from a discount rate of 5.84% on commercial bills to rates of 6.21% and 6.57% on loans secured by various types of collateral. The corresponding maximum rates, applicable to the secondary portion,were 7.67%, 8.4% and 9.13% respectively. 27' As of the end of 1952 commercial banks in Tokyo L/ In the fall of 1952 it was reported that only 2 out of the 11 big banks regularly avrailed themselves of t,he secondary credit line, and the remaining 9 occasionally, usually at the end of the month. - 37 - chariged on the average 9,13% for loans on bills although the interest rate on some loans was as high as 12%. 8/ Little qualitative control over credit has been exercised. In theory the Bank of Japan can influence the purpose for which credit is extended by determining t,he eligibility of collateral on which it will lend, but the criterion of eligibility has been broad enough so that it has not restricted borrowing by the banks from the central bank. The Ministry of Finance can advise the banks on their lending policies. Thus in July 1951 it issued a recommerndation to avoid non-urgent loans and in October 1951 it^rgred banks to advance no loans for capital purposes except to four basic industries - coal, steel:, shipbuilding and electric power. The Ntational Bankers I Association established a Voluntary Credit Regulat-on Committee in Jluly 1951 to carry out the recommendations of the Ministry, but it appears to be generally agreed in Japan that this type of credit restriction has not been very effective. In general the Bank of Japan has been cautious in applying credit controls. Such caution apparently stems largely from a fear of the widespread repercussions which severe controls would have on a banking system which is greatly '"overlentw and also largely illiquid because of the nature of its loans. The willingness of the Bank of Japan to come to the rescue of the barks has undoubtedly been the principal factor in maintaining the solvency of the banking system. Another factor which has rnade the abnormal banking situation tenable is the close association between banking and commercial and industrial business interests. Neither can afford to undermine confidence in the other. In Japan bank depositors and bank borrowers are in large part identical. The government's postal savings and transfer system provides the facilities for small personal savings and remittances, The willingness of the Bank of Japan to assist the banks in credit emergencies may be illustrated by the inauguaration of its foreign exchange loan system in September 1950. At that time the governmentts fiscal policy, pursued in line with the financial stabilization program adopted in 1949, had malde money rether tight. At the same time there was a rising demand for credit to purchase raw materials which were ralpidly increasing in price. To meet this situlation the Bank of Japan not only made yen loans for tImargin money" on letters of credit, but, wJhen im- port bills fell due, provided a 100% credit :in foreign currency to per- mit the banks to finance imported stocks until they could be sold. The considerable amount of funds thus supplied to industry in the fiscal year 1950 is evident from Table 15. Foreign exchange loans of this type were discontinued in Ncvember 1951, and although they were revived on a more restricted basis in February 1952 the volume of repayments of pre- vious loans has consistently exceeded new loans in the last two fiscal years . L8/ As of the end of J.anuary 1953, 65.75W of all bank loans on bills and deeds were at rates ranging from 8.76% to 11.32%. - 38 - Table 18 shows the development of the principal accounts of the Bamk of Japan over the postwar years. The relationship of the Bank's operattions to the governmentts fiscal operations will be dis- cussed in a subsequent section of this report., Table 18 PrincipaL Accounts of the Bank of Japan (millions of Yen) Govern- Other Loans Foreign Govern- Advances Nlote mnent De- and Exchange ment to Govern- End Issue Deposits posits Discounts Loans Bonds ment 1945 55,440 17,776 4,159 37,838 - 7,165a/ 11,220 1946 93,397 6,453 10,869 50,430 - 34,761a 7,600 1947 219,141 6,703 20,953 32,301 - 145,8662a/ 53,201 194,8 355,280 14,002 22,660 51,901 - 247,718p/ 83,509 1949 355,311 12,036 18,127 88%645 - 188,900 100,004 10950 /+22,063 47,757 25,062 114,507 154,518 136,787 63,014 1951 506,385 31,572 33,323 223,036 J.38,258 126,044 39,624 1952 576,431 91,626 59,250 223,275 94,486 286,140 38,389 Mirch 1952 457,576 97,197 25,682 227,828 97,035 99,672 39,669 PTrch 1953 515,977 129,893 54,476 291,226 96,468 193,635 38,423 a/ Including bank bonds such as Reconversiona Filnance Bank bonds Here it might be noted, however, that the Ba-nk continued to suuply sub- stantial amou-nts of money to t-he economy up to year 1952 through its ordinary loans and discounts and its foreign exchange loans. With the slackening of economic activity in 1952, how.sever, there was a reduction in the volume of credit, made available to the econoIry, although at the samw tiine the Bank subs,tantially increased its financing of government operations. Governnent Funds for Industry Government funds have been supplied to industry both from special accounts established within the budget and through government banklng institutions. These two sources accounted for 7.4% of total industrial furds in the fiscal year 1951 and an estimated 8.8% in the fiscal year 1952. The principal special budget accounts which have been a source of funds are the following: - 39 - 1. U.S. Aid Counterpart Fund This fund was established on April 1, 1949, to receive the yen counterpart resulting from the sale of imports supplied by the United States and financed by appropriations of the U.S. Congress. From its inception to December 31, 1952, the Fund had -available4561.8 billion derived not only directly from American aid but also from repayment of loans and income on its investments. Only R140.0 billion of these funds were used to finance enterprise, and of this sum almost 91% went to industries particularly essential to the economry - electric power, shipping, coal and iron and steel. The remainder was devoted to other purposes including purchase of government bonds (*111.9 billion of which all but Y 49.4 billion was permanently redeemed) and the financing of government enterprises '( 97.5 billion of which Y 7.5, * 10.0 and * 7.0 wa.s used to finance, re'cpectively, the operations of the Export and nport Bank, the Development Bank and the special loan account in the 0 government budget for agriculture). 2/ Loans to private enterprise have been at an interest; rate of 7.5% and for periods ranging from 8 years to 25 years (the ].atter for electric power). As of October 1952 the outstanding loans to private enterprise were taken over by the Development Bank which simultaneously asstmed. responsibility for making any future loans to prirate enterprise from the resources of the Fund. 2. Trust Fund Bureau The Trust Fund Bureau is the government depository for postal savings, the accumulated reserves and surplus cash of other gov- ernment special accounts and certain other fLunds. These funds it utilizes to finance the activities of both the national and local gov- ernments, of government corporations and certain govermnent supported central banks for cooperatives. Of its totaL assets of g 482.7 billion at tho end of February 1L953 about 82% was invested in bonds of the national and local governments and in loans to governments and govern- mental agencies. About i 80.7 billion was used to acquire bonds of various financial institutions. / The Bureau charges 6% on its loans to government special a3counts, 6.5% on loans to government agencies and local government bodies and 8.5% on financial debentures. 9/ A fuller statement of the utilization of these funds and the balance sheet of the Counterpart Fund may be found at Annex 2, LO/ A fuller statement of the utilization of the Trust Fund BEureauls resources as well as its balance sheet vAll be found at Amnex 3. - 40 - 3. Specil.l Account for Agriculture. Forestry and Fisheries Loans This special account was established to provide long-termi loans at interest rates ranging from 4% to 7.'5% for t'e rehabilitation aid development of agriculture, forestry and fisheries. The maximunm duration of its loans is 25 years. Its total funds amount to 12 billion of which Y5 billion come from the government 's regular (general account) budget, 4 billion from the Counterpart Fund and W3 billion from the Trust Fund Bureau. As of 1,rch 31, 1952, it had almost 'l2 bill1on of loans outstanding. 4. Government Finanaial Institutions Among the government financial institutions established to finance private enterprise the following should be mentioned: a. Export-ELDort Bank This institution was established in December 1950 to finance the export of capital goods, including related technical ser- Tvices, and the acquisition and development abroad of essential raw mnaterials for the Japanese economy. It makes loans to Japanese com- p-nies orly with the paerticipation of the regular banks but can make loans to foreign compani'Les or governments without such participation. It charges an interest rate of 7.5% and can make loans with maturities of from 6 months to 3 years (in exceptional cases, 5 years). In the spring of 1953 authorization was pending to increase the maximuim m-aturity to 10 years (in exceDtional cases, 1L5 years) in order to per- mit the Bank to become nore active in financ.ing the long-range develop- ment of new sources of raw materials abroad. As of the end of Febr:uary 1952 the Bankts paid-up capital amounted to 4 21 billion of which i 7.5 million was supplied by the Counterpart Fund and the balance from the r-gular (general account) budget. Total loans and discounts at that time amounted to only v 5.6 billion. It is interesting to note that one loan of 2 427 million was m-de to finance the export of manchinery and eQuirnment recuired to develop iron ore mining in Goa for eaport to Japan. b. The Develoment Bank In the early postwar years, particularly in 1947 and 1948, the government1s Reconversion Finance Bank, supplied substantial funds to industry not only for purchase of c-apital equipment but also to cover operating losses. After further lending by this institution was stopped in Miarch 1949, primarily because it was an instrumentality of inflation, the government was a virtually unimportant supplier of industrial funds for two years. In Lbarch 1951, however, the government established the Japan Development BSnk to provide capital for econormc reconstruction and industrial development which ordinary financial - 41 - irstitutions could not supply. For this purpose the Bank was empomered to (4 ) mak e loans, (2) suabscribe to debentures, (3) take over development loans fromn other financial institutions, (i ) guarantee liabiDl iities aith respect to development funds. In 1952 the Bank was also authorized to take over the claims and liabilities of the o:Ld Reconversion Finance Bank and the management of loans to private industry fron the CGomterpart Fund. Amnounts equrivalent to the government' s investment in such Recon- version Finance Bank and Finance Bank loans are being gradually trans- ferred to the Developmnent Bank's capital. The Bank wias also made the underwlriter of stock issues up to Y13 billion by the Electric Pc7..er De- velopment Company established by the govrernment in July 1952. As of the end of Januar-y 1953 the paid-up capital of the Bank amounted to W1C7.17 billion of which ;85.22 billion represented the capital counterpart of RF3 loans and the bala:nce a cash capital subscrip- tion from the Counterpart Fund (110 bi1lion) and the government's general account budget (OJ1,95 billion). Borrowing from the government amounted to Ii43.1 billion, representing the governmentts investment in Counterpart Fund loans taken over by the Bank but not yet transferred to capital. T'he Bank had loans of ;260.2 billion outstanding of which, however, -7211.0 billion were old RFB and Counterpart Fund loans. Its subscription to the capital stock of the Electric Pvow.:er Development Oompany amounted to `.)95 billion. 31/ Tho Bank has made nearly all of its loans with the participation of private banks such as the industrial Bank. Loans are made Por one to five years but can be extended, where necessary, for a maximum of 30 years. The standard interest rate is 10O but 'Loans for electric noaer facilities and con.struction of ocean-going vessels are made at the -ate of 7.,5. The Bank has granted most of its loans for basic indus- trial f acilities as is `.ndicated by the folluwingg tabullation of its loans outstanding at the end of September 19;2 (in millions of yen): -Coal rmining 3, d68 Other mining 1. 10 Miteal industry 5 N5 industrial pojer 4,762 (vhcmical industry )4, 74 Machaneiry industr 2,37 OtIlers 3 034 The Bank w.as expe3cted to take over as far as possible equipment loans by comerrcial banks, and it accordingly assumed loan obligations to the shipping and electric povser industries a-mounting to : 5*8 billion of -w.hich W5.0 billion wa3 still outstanding at the end of September l192. The need for capital is so great, hok'ever, thCat it can hardly take over 31/ For a sta-tement of the principal accounts of tfte -.ank, see ArLnex 4. At the end of January 19'3 pay.:ents were past due on loans amlounting to -13.o6 billion . - 42 - a significant portion of the burden of equipment financing from the com- mercial banks. It should be noted that the Development Bank was authorized to contract foreign currency loans from foreign banks and other financial institutions in the expectation that it would become the principal instrumentality for contracting foreign development loans. a, Other Government Financial Institutions Other governmer.t financial institutions which might be men- tioned are: (1) the Peoplets Finance Corporation established in 1949 to give loans to small business which finds it difficult to obtain credit from the regular banks, and (2) the Housing Loan Corporation created in 1950 to finance housing, At the end of January 1953 the first had loans outstanding to a total of W19.1 billion as against a paid-up capital of W13 billion, a loan of Y4.5 billion from the Trust Fund Bureau and other resources amountizng to W3.1 billion. The Housing Loan Corporation had loans of 926.75 outstanding on March 31, 1952. Its capital at that time amounted to Y23 billion (.10 billion froim the Counterpart Fund and -l13 billion from the governmentis general account budget) and it had borrowed 96 billion froin the Trust Fund Bureau. In the fiscal year 1952 the government increasedl its investment in the People's Finance Corporation by Y10 billion (; 6 billion from the general account budget and :L4 billion from the Trust Fund Bureau) and in the Housing Loan Corporation by *20 billion (98 billion from the general account budget anid 12 billion from the Trust Fund Bureau). Government Finance and Inflation In view of the steady and large demand for capital the government has had to struggle constantly against inflationary pressures. Before, howiever, attempting to assess the effectiveness of governmental action to maintain financial eouilibrium without unduly restricting essential inivestment, it is advisable to explain the rather complicated structure of government finance. The government bud.get consists of (1) the general account budget, and (2) the budgets of many special accounts of which there were no less than 34 in the 1952 fiscal year. To the general account bued,get accrue all tax revenues, incomle from government monopolies and enterprises and sundry miscellaneous receipts. Frorm the general account budget, too, all the regular operating expenditures of the government, including those for defense, public works and general administration, are met. The special accounts have been established for specific purposes, and their annual operating receipts (including allocations from the general account budget) and expenditures are inlcorporated in the government budget. The total picture is confused by the fact that the genieral account budget finances part or all of the expsnditures of some special accounts and that some special accounts finance other special accoumts. Thus there are a large number of fund transfers among the various accounts. All of the accounts, however, are included in the operations of the Treasury or Government Fund. - 43 - Three of the spec:Lal accounts - the Cournterpart Fu-nd, Trust Fund Bureau and Special Accounr- for Agriculture and Fisheries - have already been described. /32 A fe7w of the others shou:!cl be briefly mentioned hero. Thie rmost important of these is the Foreign Zxchange Fund which buyrs and sells all foreign exchange. Another is the Special Account for Food- stuff Oontrol into which are entered governmen-t transactions arising out of the purchase and distribution of principal- foodstuffs. The government, for edx -ole, purchases and distributes all irported and domestic rice and iLrported wheat and barley. The general account budget provides an annual subsidy to offset the higher price of im;ported foodsstuffs. Up to the fiscal year 1949, when the financial stabilization rpro- gram went into effect, the government' s financial operations shoed sub- * stantial deficits which v ,ere f0inanced primarily by the Bank of Japan and other financial institutions . As a result the inflatioon, set in motion ",, the collapse after the wJ;jar, spiralled rapidly. The wlholesale oricei index rwhich averag,ed 16., tities the 193L'-36 level in 1946 rcss to arproxi- mately 200 ti;mes the preunwar figure by the end of the fiscal year 1948. Begimning iwjith the fiscal year 1949i, the governmentts financial operations nere directed with a viewir to counteracting inflation and even promoting some degree of disinflation. This becones apparent .;hen the TrGasury'r's transactions i%ith the 1t'pblJi&' are examined, i,e. its receipts and payments exclusivre of intra-government transfers and transactions with the Bank of Japan. (See Table 19.) Thus, aith the exception of the fiscal year l950, the Traasury has absorbed more funds fromtl.z public t'han iti paid out to the public. In other .vords, the Treasury's operations have generally been deflationary in effect. They tended to contract the note issue. That this result vas achieved is all the more remarkable because until the fiscal year 1952 the Foreign Exchange Fund ran a substantial sur- plus of yen pa,yments over yen receipts because Japan hadalarge surplus in her balance of international payments. Thus the Treasury offset the in- f-lationary effect rwhich this surplus vould otherWise have had. Duhring this period the General Account Budget has showin a particu- larlv large surplus in transactions with the public. The surplus -as ap- propriated in large part to finance the inventory of the Foreign Exchange Fund and tUhe 17oodstuff (Control Account and has also been used to provlde funds for various government investment institutions and accounts. Thus the General Account 2udget has been a vehicle for compulsory sairng by the public. (See Table 21.) -t should also be noted that during S most of this period - at least until the third qiuarter of the 19`2 fiscal year - the goverrnment debt to the B3tsank of Janan was steadily reduced. In the first year o-f the finan- cial stabilization progrum the assets of the Caounterpart Fund were used to redee,m 82. , billion of the outstanding gove:rnment debt. 10 See page 39-40. IrqT ABSOBPTI9_)9R DELBA&E j OF W IN TRANSAC¶IOQY3S OF1 TREAiSURY .AND BANK OF JAO AN hITH TIlE PUELIC AjNTD ITS _R__ATIOS__ TO TIONEY SUPIY AND PkICES (by fiscal years; in billions of yen) M9~2 ,=95011 23_29 1- TreasUrTransactions 4/ 17.3 - 45.8 42.0 21.5 of which Foreign Exchange Transactions -61.0 -278.1 -38.9 122.0 2. Bank of Janan Transactions -16.1 - 39.1 -103.3 -79*9 Sale or purchase of government bonds -55.7 - 24.0 0.3 1.3 -Sale or -nurchase of non-government bonds 65.3 - _ Changes in loans and discounts -40.8 - 19.1 - 99.8 -6.14 Changes in bank deposits with Bank of Japan - 2;2 7.5 - 2.6 0.8 Designated deposits 21.6 - - 15.9 -27.6 Others - 4.3 - 3.5 14.7 9.0 3- Total brtio.n or R2elease of Funds 1.2 - 84.9 61.3 -58.4 4. Ic. or Decrease _in Bank of_J - 1.2 84.9 61.3 58.4 Note Issue 5- Index of Bank of Jaran Note Issue 99.9 126.8 146.4 172.2 rind of Period; March 19149 s 100) 6. Increase orfIecreasegIinTota1 Money Su33 21.6 127.5 85.3 114.23 7. Ynde of Total MonetSu p1 _106.3 1143.4 168.2 201.4cf 7End of Period; iI;arch 31, 1949 - ioo) 8. Wholesale Price Index (End of Period; 115.4 169.6 179.1 178.2 March 1949 ~ 100) 9. xo Price Index (End of Period; Apr.1949 - 100) 81.1 157.5 116.9 109.7 10. Im ort_Price Index (End of Period; Apr.1949 100) 98.5 141.5 127.2 109.5 Al It should be noted that Japanese official statistics give several sets of figures on the Treasuryts transactions with the public, depending primarily on the type of adjustments made and the attribution of different tyres of transactions to either the Treasury or the Bank: of Japan. The figures in this table are compiled on a consistent basis from year to year. -/ -,or 11 months of the fiscal year. c-l End February 1953. Table 20 INTERNA,L_ATIO0KAL GOWVEN LDBBT (for end of each fiscal year; in billions of yen) f_Debt Holder 1946 4 1948 199 1950 195 Lon-term Bonds 139.9 172.2 208.6 279.6 290.7 241.3 261.1 336.7 Government 45.3 47,5 47.1 53.7 67.2 39.3 101.0 65.9 Bank of Japan 2.3 36.7 58.8 60.7 114.3 143.4 93.9 129,3 Other 92.3 88.0 102.7 165.2 109.2 58.6 66.2 141,5 Srt-term Securitiesa/ 3.0 30.8 46.2 120.6 118.9 118.0 194.0 279.1 Government 2.3 - 4.0 20.4 41.6 94.9 158.0 172.7 Bank of Jaran 0.7 30.0 35.9 80.5 59.3 0.2 11.6 71.7 Other - 0.8 6.3 19.7 18.0 22.9 24.4 35.7 Borrowinjs b/ 55.3 59.7 91.2 90.7 88.5 86.9 87.2 109.0 Government 1.2 3.1 2.6 3.0 2.9 2.9 7-3 30.2 Bank of Japan 6.5 14.1 46,1 45.1 43.5 42.6 38.5 37.4 Other 47.6 42.5 42.5 42.6 42.1 41.4 41.4 41,4 -1emx,orarwBo rr-n / 0*2 1.5 13.6 '2 A 38.3 7.5 - - Government 0.2 - - - - - Bank of Japan - 1.5 13.6 32.5 38.3 7.5 - _ Other - - - - - ~~~~~~~~~- - Total 198.6 264.5 359.8 523.6 536.6 453.8 543.7 725.9 Government 49.0 50.8 53.7 77.2 111.9 136.2 266.5 268.8 Bank of Japan 9,5 82.2 154.4 218.8 255.5 193.7 145.2 238.4 Other 140.0 131.5 151.7 227.6 169.3 124.0 132.0 218.7 Note: Totals do not always check because of rounding. al Maturity of less than one year. b Yiaturity longer than one year. - 46- - The Treasury' s operations must-, howaever, be arialyzed in con- junction ,.ith those of the 3ank- of Japan in order to gauge the joirt effect of these t.;wlo instit;utiions on monetary st-ability. Table 19 shows that the operations of the Bank of Japan have r.more than offset the dis- ~-infationar- effect of the Treasury' s transactions. In responlse to the deL-anid for credit the Balk tended to increase its loacns and discounts consistently until the- th:Lrd quarter of the fiscal year 1952. 7:Jth the subosequent slackening in econom4c activit,y the demand for credit also declinecd. Another means by wihich the Pank of Japan increased the suoply of credit w.;as by making deposits Og government funds in other banks. "hese so-called "'designated deposits" rose particularly during the second half of the fiscal year 1951 and -imost of the f:iscal year 1952. 33/ Thilus, except for the fiscal yeaxr 19L$, the bank note issue has consistently in- creased. F'y the end o" Jimuary 1953 -t Fas 66.3% higher thean at the begin- ning cf the fiscael yea-r 14). 1Ioreover, the total m-oney surply, including deposit curr*ncy, has risi-n even more rapidly, the total outstinding at the end of the fiscal >sear 19'2 (-Iarch 1`53) being 7l3li6. higher than at the start of th1e 19_'? fiscal vear. hIds was aue to thne fact that the banks incroased their lending and thus the creation of' deposit currency (i.e. current dehio0its ) substantial,ly bew-ond the amount made available to them through loers arn discolunts -by the Ban' of Japan. L.hus Jap, n has continued to experlence a substantial inflation in th>e -Ioney up,ply over recent years nespite th,e disinflationary policies of th'e gov Trrnen . This in` l ation in the m,one s-au,ppl3 has been out o-' all proporti or to the increase in prodiuctin c hich has taken -lace. Inevitab'iy ,his has res-lted in riEing nrices. Iholsale urices in 1952 averaged be- t-v,.een 70%, and M% higher than in March 1949, a'though they fell slightly in the fiscal year 1952. Undoubtedly, much of t-he original stimulus for this increase came from t,he sharp rise in the prices of imports and exports which resulted from the Korean war. Yet Japanese prices hnve remained high despite the marked drop in both import and export prices which has long since taken place. (See Table 19.) Since the end of the occupation in 1952 there has also been some weakening of the governmentts resolve to maintain the financial stabiliza- tion program. There have been strong pressures for a more "positive" fiscal policy and for higher consumption outlays. Thus the more purely consumption expenditures of the General Accotnt budget have tended to in- crease more rapidly than other expenditures. (See Table 21.) Dxpenditures for purposes other than public works, other investment and defense, which amounted to 52% of the Gsneral Account Budget in the fiscal year 1951, rose to an estimated 58% of the total in the 1952 fiscal year and to 64.7% in the budget for the 1953 fiscal year which was submitted to the Diet in June 1952.3/ Under the 1953 budlget the government apparently hopes to float bond issues to raise about i 36 billion in investment funds required by such institutions as the Developmient Bank, the Po-wer Development At -the endl of Januar:~ 1953 the crount of d,asignated deposits o-ut- standing .as 38.8 billion compared with -h.5 billion the year before. 22/This budget was submitted late because the original 1953 budget was not adopted before the Diet was dissolved in A.pril. In the initial months of the 1953 fiscal year beginning April 1, 1953 government expenditures were made under interim monthly budgets. - 46 - Corporation, the National Railways and the Telephone and Telegraph Cor- poration. It evidently expects that these bonds will be subscribed by corporations and banks even though these generally suffer from a severe shortage of resources themsElves. The government also proposes to have the Counterpart Fund supply g 41 billion for investment reouirements even though it appears likely that the Fund can find the necessary re- sources only by selling its holdings of government bonds, presumably to the Bank of Japan. Table 21 National Government Budgets - Expendita2es (in billions of yen; by fiscal years) 2950 1951 1953 (actual) (est.) (est.) (Proposed) General Account Public Works 98.4 100.4 134.1 161.4 Investment 2/ 25.4 155.3 77.2 40.6 Excluding inventory finmancing 12.9 56.1 42.2 40.6 Defense bJ 111.6 125.4 lSO.2 140.1 Equalization Grants to Local Govts. 108.5 120.0 145.0 179.0eJ Price Subsidies 2/ 64.0 22.5 38.0 30.0 lvliscellaneous 236.6 270.0 358.0 376.6 Sub-total 633.3 793.7 932.5 968.3 Special Accounts 1,900.0 1,366.3 1,255.5 n.a. Total 2,533.3 2,160.0 2, l1S.0 n.a. Deductions dJ 720.4 415.6 400.7 n.a. Net Total 1,g12.9 1,744.4 1,787.3 n.a. - a/ Investment in government financial institutions and corporaticns and appro- priations for financing inventories. Appropriations for inventories were primnarily to finance increased foreign exchange holdings by the foreign exchange special account ('10, 5S0 and Y35 billion in 1950, 1951 and 1952, respectively) a-nd the purchase of foodstuffs (@10 billion in 1951). _/Including appropriations for the support of U.S. forces. /Subsidies on imported foodstuffs. d1/Deductions are made for (1) intra-government transfers, and (2) appropri- ations for debt consolidation which are offset on the revenue side by an equivalent sum. /Including national government's share of expenditures for compulsory education. - /48 - Another indication of the relaxation of strict fiscal policy is the program of continued tax reductions. 1lKith the rapid rise in nation- al income and government revenues which followred the outbreak of the Korean war there was an understandal-le desire to reduce tax rates and diminish the total burden cf national and local taxes which in the fiscal year 19h9 absorbed 26% of the national income. 'uiith successive reductions in tax rates the proportion of taxes to national income declined to about 20,;o in 1951 and 1952. Up to the 1953 fiscal year such reductions were quite compatible with a continued rise in government revenues, but in view of the marked levelling off of economic activity in 1952 it is doubtful 'Thether the same would be true of the additional cuts proposed in the 1953 budget. In any event there seems little doubt that the lowering of tax rates has encouraged. consumption more than savings and investment at a time w)Then investment capital has been extremely short. Selected cuts in direct taxes could have been justified on the ground that the proportion of direct taxes to total national and local tax receipts, -tphich was 63.1% in the fiscal year 1952, discouraged private savings and self-financing by industry. This -was particularly true of cor- porate taxes, Corporations did receive some relief in that they wvere twice permitted to revalue their assets in order to make larger tax-free depreci- ation allowances on new investments in certain basic industries. In 1953 the government has proposed to authorize a third revaluation, expand the system of special depreciation allowances and increase the tax-free reserves for "bad debts" and "price fluctuations". However the general corporate tax rate has remained high and was even increased in 1950, so that today the aggregate,national and local government tax rate on corporate profits is 59.25% 34/ Nor has the government encouraged self-financing by undertaking to tax profits retained for business expansion at a lower rate. Individual income taxes have been repeatedly reduced and were a2ain to be lowered under the proposed l953 budget. hiany features of these reductions, howP- ever - particularly more liberal exemptions and reduced rates on the lower income brackets - wuere a greater stimulus to consumption than to savings. Indirect tax rates, which bear most heavily on consumption, have also been lowered in some cases. Thus in 1952 the government decreed a cut of 50% in amuasement taxes, the income of which accrues to the local prefectural governments but the rates of which are fixed by the central government. Under the 1953 budget certain other consumption taxes are to be reduced. These reductions have been in large part justified on the ground that prevailing high rates produced tax evasion, but it is doubtful that they will not result in some losses of g,overnment revenues. Finally, it should be noted that the government has increasingly resorted to the Bark of Japan for financing its transactions during the fiscal year 1952. Thus at the end of the fiscal year 1952 the Bank's hold- ings of government obligat-ons stood at -286.8 billion compared to only 1944.0 billion the year before. 34/ In addition corporations pay a local tax of. 1.6% on their fixed assets. - 49 - Table 22 National Government Budgets - General Account Revenues (3in bi2ions of yen; by fiscal years) 1950 1951 1952 1953 (actual) (actual) (est.) (proposed) Tax and Stamp Revenues h56.4 604.0 685.3 716.1 Direct taxes 313.5 425.o 461.8 n.a. Income 220.1 225.7 260.1 n,a. Corporation 83.8 183.9 188.0 n.a. Others 9.6 15.4 13.7 n.a, Indirect taxes 133.7 168.5 209.5 n.a. Stamp revenues 9.2 10.5 14.0 n.a. Income from h onopolies 114.5 119.1 131.3 143.7 Japan i"ionopoly Corporation a/ 113.8 118.8 130.5 n.a. Alcohol Mionopoly o.6 0.3 0.8 n.a. Profits and Receipts from Government Enterprises 10.0 13.1 13.5 ) Liquidation of Government Assets 18.9 34.1 21.6 ) 62.9 Miscellaneous 57.8 41.6 53.9 ) Surplus in Preceding FiscaL 'Year 59.2 83.5 26.9 5.6 Total 716.8 895.5 932.5 968.3 a/ This Corporation operates the monopolies for tobacco, salt and camphor. Despite these tendencies to depart from the financial stabilization prograrmi tlhe Treasury showed a surplus of 421.5 in its transactions with the public in the 1952 fiscal year. Thlis result, however, was achieved primarily because the foreign exchange fund, in contrast to earlier years ran a surplus of about 4122 billion in the 1952 fiscal year, partly because in the latter part of the year Japan's balance of international payments became adverse. Moreover, expenditures on national defense ran far behind schedule resulting in a reported carryover of Y166.5 billion into the 1953 fiscal year. Without these two developments the recent inflationary trend of government financial policy would have become clearly evident. In any event it is generally agreed that the Treasury will show a considerable deficit in the 1953 fiscal year if the final budget adopted after the elections conforms generally to the features of that originally proposed. - 5o - IV. F0REII'-j TRADE AND BALA'TCE OF PAYMENTS Japan's postwar baLance of trade and ma2ments has beer characterized by (1) the low volume of 1both exports and imports, (2) the large deficit in the balance of trade, (3) a shift to dollar sources of imports, and (4) large expenditures of the U.S. government and U.S. personnel in Japan resulting in dollar receipts in a volume not only offsetting the commercial trade deficit but permitting substantial additions to foreign exchange reserves. A comparison between the prewirar and postwar trade, with a vtolume index making a rough adjustment for price changes, is given in the Table 23. It wvill be noted that the import surolus until 1950 was more than covered Table 23 VTalue and Volume of Janan's Foreign Trade VALLE_ in millions of dollars) INDEX OF VOLU?E Exports Imnorts Import Exports : Imports : U.S.Aid Surplus Total : Imports 1934-36 av. 928.X 950.9 - 22.5 100 100 Sept.1945-Dec.1946 103.3' 305.6 192.9 202.3 - - 1947 173.6, 523.5 404.4 349.9 - - 1948 258.'3 684.2 461.0 425.9 7.5 17.8 1949 509.7 904.8 534.7 395.1 15.5 27.6 1950 820.2a/ 969.9 361.3 149.2 29.3av 32.5 1951 1,354.Sa/ 2,0L6.8 160.3W/ 69-2.3 29.8!/ 47.2 1952 1,271.(3a/ 2,027.2 5.4 755.3 31.la/ 54.0 a/T Excluding goodis exported under special IT.S. Government Procurement Contracts. I:> exports of goods under such contracts are included the total volume in the last two years is about 35% of prewar. b/ Estimate. by goods paid from appropriations made by the U.S. Congress for the support of Japan. After the U.S. fiscal year 1951 ap-propriations for such imports ceased, but they were m;ore than replaced by other special sources of dollar income which enabled Japan to finance its imoort surplus. This dollar income has been derived from (1) U.S. government payments to defray part of the cost of local goods and services required by U.S. forces in Japan which before mid-1951 had been entirely met by the Japanese government, (2) payments on U.S. government procurement contracts placed in Japan prima- rily to supDort the Korean war effort, and (3) personal expenditures of - 51 - U.S. personnel in Japan. Thus from June 1950 to the end of 1952 procure- ment of goods and services by the U.S. military yielded Japan a dollar income of $846.1 mi'lion of which $413.8 million was earned in 1952. From all three sources combinedL, Japan received about 4135 million in 1950, $512 million in 1951 and as much as $808 million in 1952. Foreign Exchange Holdings Owing to these sources of special dollar income and a favorable balance of non-dollar payments Japan has been able to add substantially to its for- eign exchange reserves over recent years. As is indicated in Table 24, there was an overall increase of almost $230 million in 1952, although a small decline took place in the second half of the year. Dollar holdings rose by $163 million. Without the special dollar income specified above, however, there would have been a dollar deficit of $557 million, assuming, of course, that payments wvould have been the same. Table 24 Japan'3 Foreign Exchange Holdings (:in millions of dollars) End Dollar Sterlink Open Account Total 1949 166.1 44.4 11.2 221.7 1950 461.8 54.4 40.7 556.9 1951 583.2 211.3 119.8 914.0 1952: June 698.3 355.3 134.6 1,188.2 SePt. 718.6 336.9 126.8 1,182.3 Dec.a/ 746.3 261.4 135.1 1,142.8 1953: April 827.9 114.3 84.3 1,026.5 a/ Estimate made by adjusting September figures for foreign ex- change expenditures and receipts in the last quarter of 1952. Low Trade Volume The factors responsible for the lowii volume of commercial exports have already been mentioned in connection with the discussion of the de- velopment of production in Janan. Briefly recapitulated they have included the virtual loss of the nearby Asiatic market; the sharp decline in sales of silk and cotton textiles; the relatively high prices of some basic manu- factures; backwardness in techniques in some respects; trade discriminattion; and the long delay in turning over to the Japanese responsibility for the promotion of their own exports. The continued low volume of imports is more difficult to explain in view of the fact that production in Japan sub- stantially exceeds prewar levels. The primary reasons for the low volume of imports have been (1) greatly reduced requirements for raw cotton, (2) increased reliance by the metallurgical industry on domestic scrap and domestic coking coal, (3) greater reliance on hydroelectric power as a source - 52 - of energy, (4) the shift in production from cotton and woolen textiles which require a high proportion of imported raw materials to chemicals, building materials and machinery wifich require a much smaller Proportion of imports in relation to their value, and (5) possibly some economies in the use of raw materials. In 1951 exports were only 11% of national income and imports 16%, while in 1935 and 1936 each was about 23% of national income. Composition of Exports and Terms of Trade Desoite a sharp drop in the volume of textile exports, these still accounted for 36.9% of the value of all exports in 1952 as compared with 52.2% in 1934-36. The share of machinery, equipment and chemicals - all products which Jaran has hoped to export in increasing measure - has not risen significantly. M.achinery and equipment accounted for 7.8% and 10.9% of total exports in 1951 and 1952 respectively, as compared with 7.1% in 1934-36. Exports of chemicals which were negligible before the war, amounted to only 2% of exports in 1950 and 1951. HMetals and metal products (primarily iron and steel) wvere the only item whose share in total exports increased substantially - from 8.2 in 1934-36 to 28/O in 1952 - largely owing to the great demand for such prcducts in the world market following the outbreak of the Korear war. In the postwar yeers Japan's terms of trade as reflected in the re- lationship of imnort and export prices has in general been about the same as in 1934-36. In the pcost-Korean period they have even been about 10% better than prewar. In the future, however, they may deteriorate somewhat. If Japan is to export a much larger volume of machinery, equipment and chemicals it will presumably have to lower its prices in order to meet competition. At the same time it will have to import proportionately more of those raw materials which, owing to a shift, to more distant sources of sunply, are especially ex-pensive as compared with prewar years. Shift in the Distribution of Trade The marked shift -Ln the geographic orieXntation of trade becomes aprarent when the distribution in 1938 is compared with that in 1951 as in Table 25. In 1951 the neighboring Asiatic area accounted for only 5% of Japanese exports and 4% of the imports as compared with 61% and 40% respectively in 1938, while its share of Japarnts exnorts increased much less. In 1952 the same area took about 9% of Japan's exports and supplied 5% of its imports. - 53 - Table 25 Geogranhic Distribution of Jaroan's Foreign Trade (in millions of dollars at 1938 prices) 1938 1951 Exports Imports Expoorts Imports Value % Value % Value % ttalue I Value __ Value % VLu au _ Nleighboring Asiaa/ 664 61 425 40 15 5 20 4 Other Asia 143 13 175 16 130 46 145 25 North America 131 :!2 287 27 44 16 266 46 Others 156 _ I 175 17 92 33 142 25 Total 1,094 190 1.062 100 281 100 573 100 a China, Korea, Formosa. The shift of trads towvard the dollar area becomes even more graphic by a tabulation of ex-'orts and imports according to the type of currency used in settling trade transactions. Table 26 shows the distribution of trade by areas requiring settlement (1) in do:Llars, (2) in sterling, and (3) through open-account booking of credits and debits under bilateral payments agreements not providing cash foreign exchange transfers on individual transactions. It clearly indicates that the overall trade de- ficit is a dollar deficit. With the sterling and open-account areas Japan has had substantial surpluses until very recently but owing to the large increase in dollar imports the deficit with the dollar area was $885 million in 1951 and !t823 million in 1952. Dependence on the Dollar Area The principal factor in the large trade deficit with the dollar area was the large volirre of imports of foodstuffs and raw materials which Japan had to obtain fromt this area in postwar years owing to lack of ade- quate supplies from other sources. Table 27 shows the large proportion of such imports which came from the dollar area in 1951. In this connection it should be noted that the dollar area included not only the United States and Canada, but also the large number of countries in Latin America, Europe and the Mdiddle East which are outside the sterling area and with which Japan does not have bilateral payrents agreements. -~~~ Tabl e 26 FOREIGN TRADE BY CURR$TTOY OF SFTTLETvwEiNT (in millione of dollare __ OTS _ _ ____ ___ - A_ IMPORTS -__ _____ __ _ _ BAT AlICE 4- 6 1 19 __4-36 _ i 51 3S2_ _ Q 191 19S2 (Average) tAverage (Average) Value M Value % Vain l Valu 3L. jTh. te Value Vlalue AVl V Total 92B.4 100.0 802.2 100.0 1354.5 100.0 1272.9 100.0 950.9 100.0 970.0 100.0 2046.8 lOOD 2t32 100.0 -22.6 -149.8 -692.3 -755.2 DollarwArea 387.9 41.8 294.8 35.9 362.0 23.+4 400.0 314 .t'.7 42.8 5 57.2 1202.2 58,7 2 63 -18 8 -290-Q _ R23.3 U.S. 147.8 15.9 179.2 21.8 185.0 13.7 229.2 i8.0 234.6 24.7 426.8 44.0 695.1 33.9 768.3 37.9'-82.6 -247.6 -510.t -539.1 Sterling Area 204.9 22.1 244.1 29.8 612.7 45.2 539.7 42.4 213.9 22.5 221.5 22.8 472.5 23.1 501.6 24.7tl - 9.1 $ 22.5 ,&140. fL 38.1 U.K. 36.4 3.9 26.9 3.2 54.0 4.0 73.1 5.7 21.8 2.3 6.4 0.7 32.8 1.6 36.7 1.8 j $14.6 1 20.5 ,L 21.2 7i 36.4 Australia 20.1 2.2 23.1 2.8 90.1 6.7 28.3 2.2 59.5 6.3 76.4 1.9 139.2 6.7 132.8 6.5 -39.4 53.4 449.1 C.104,5 India ) 20.3 2.5 51.8 3.8 36.7 2.9) 1 17.8 1.8 52.4 2.5 73.0 3.6 $ 2.5 _-o.6 , 36.3) Pakistan) 74.7 8.0 55,6 6.8 117.0 8.6 117.8 9.3) 93.5 9.8 39.0 4.1 102.5 5.0 82.4 4.1 -18.8 J 16.6 $14.5 p-35.4 Burma 16.3 2.0 18.1 1.4 21.2 1.9) 17.7 1.8 30.6 1.5 29.8 - 1.4 -12.5 8.6 Open Accoruit 327-8 3IA3 2813 34.3 424.9 31.4 333.3 26.3 322.3 33.9 193.6 20.0 372.2 18.2 303.3 15.0 $5.6 $87.7 $52.7 $ 30.0 Indonesia 41,7 4.5 46.3 5.0 128.4 9.5 59.8 4.7 24.7 2.6 13.4 1.4 54.8 2.6 27.5 1.4 917.0 7 32.9 $73.6 1 32.3 Thailand 10.8 1.3 42.6 5.2 45.2 3.4 36.4 2.8 1,5 0.2 43.5 4-5 51.0 2.5 62.5 3.1 ,L 9.3 3 .0,9 -5.8 - 26.1 Korea 156.5 17.0 11.1 2.8 14.8 1.1 49.8 3.9 134.4 14.1 16.1 1.6 7.1 0°3 20.2 1.0 122.1 - 5.0 17-7 $29.6 Formosa 69.1 6.5 36.6 4.5 50.6 3-7 60.7 4.8 89.4 9.4 37.9 3.9 53.0 2.6 63.8 3.1-O 20 3 - 1.2 - 2.4 - 3.1 Other 7i8 0.8 - - - - 8.1 0.8 - - - - - - 0.3 - - - ,/ Includes China, Manchuria and Kwantung province and all countries outside the sterling area with which no bilateral rayments agreements have been concluded. - 55 - Table 27 Žuantity of ImDorts of Foodstuffs and Raw Materials in 1951 (in thousands of units) Commodity Total Imports Imports from Dollar Area Raw Cotton (bales) 1,674.0 1,229.6 Wheat (tons) 1,653.6 1,593.0 Barley (tons) 899.2 743.2 Rice (tons) 798.8 235.4 Sugar (tons) 553.7 362.0 Soya Beans (tons) 309.9 309.3 Coal (tons) 1,934.9 1,354.7 Iron ore (tons) 3,088.8a/ 1,202.3 Salt (tons) 1,798.2 1,017.8 Petroleum (kilolitres) 4,495.0 3,706.4 a/7This figure, derived from customs statistics, differs from that given in Table 7 which wvas supDlied by the iron and steel industry. M.ost of the dollar trade deficit has been with the United States. Janan's imports from the United States, according to U.S. statistics, reached a high of $620.3 million in 1952 as compared with an average of only $203.1 million in 19.35-36. The United States which exported virtually no foodstuffs to Japan before the war has becomne the Principal supplier of foodstuffs, principally grains, in the postwar years. In 1952 it oven shipped coal and iron ore to a value of $39.7 million. Among other items which it has supplied in larger volume in postwar years have been machinery, vehicles and chemicals. U.S. cotton exrorts to Japan in 1952, although only two thirds of the volume in 1935 and 1936, were 87% higher in value because of the rise in prices. At the same timne the total of U.S. imports from Japan were actually smaller in volume even though greater in value than in preiqar years. There was a sharp drop in U.S. imports of silk. Out of total U.S. imports of $226.5 million from Japan in 1952, $31 million consisted of iron and steel products, an import due only to a temporary shortage of steel in the United States. Table 28 Japan's Trade with the U.S. (in millions of dollars, according to U.S. statistics) 1935 1936 1950 1951 1952 Total I_ports 202.6 203.6 416.2 592.5 620.3 Principal Imports Foodstuffs 1.5 1.4 122.5 183.1 223.2 Grains - 0.1 88.7 142.4 180.7 Wheat - Vralue - 0.1 7C.6 96.7 99.4 Wheat (imil. bu.) - 0.1 30.9 41.8 43.4 Barley - Value - - 10.6 38.0 24.4 Barley (mil. bu.) - - 8.2 25.1 13.7 Rice - Vfalue - - 7.5 7.6 56.9 Rice (mil. lbs.) - - 152.1 98.5 681.1 Soya beans - - 11.9 40.3 26.7 Raw Materials Cotton - Value 98.6 88.3 217.6 181.7 175.0 Cotton (thous.bales)1158.0 1356.0 1229.0 868.0 840.0 Coal - Value - - 1.4 14.6 26.8 Coal (thous. tons) - - 14,.0 1569.0 2786.0 Petroleum & products 25.6 28.9 2.9 29.4 24.0 Iron ore - - - 8.9 12.9 Machinery & Vehicles 20.5 20.5 11.1 25.9 47.5 Chemicals 6.8 9.9 23.8 24.8 27.9 Total Exnorts :151.4 172.6 177.5 200.4 226.5 Principal Exrorts Vegetable, animal and marine products 27.2 30.3 37.4 35.6 41.8 Fish & Shellfish and products 5.7 5.3 21.4 16.3 23.1 Cotton manufactures 7.6 16.7 12.2 11.6 11.8 Silk & si1kma.nuf-aturc393.2 98.5 37.3 39.7 49.4 Woods manufactures 1.0 1.0 :2.8 4.6 6.4 Glass & glass products 0.6 0.7 :1.7 2.3 2.1 Clay products 4.4 4.4 3.3 12.5 12.1 Iron & steel products 0.1 0.4 3.9 18.1 31.0 Aluminum & manufactures - - 4.8 3.9 2.8 Precious metals, jewelry 0.8 0.3 :2.5 13.8 6.2 Sewing machines & parts - - 4,7 6.1 9.2 Optical goods 0.2 0.3 2.2 3.3 3.0a/ Toys & Sports goods 1.9 2.1 4.1 4.0 4.7 a/ Incomplete - 57 - Overall Balance of Papnents In the decade before the last war Japan had considerable difficulty in balancing its international accounts. The proceeds of an export surplus with her overseas dependercies were generally used for investment in these same territories. With the rest of the world there was a substantial import surplus. In some years this surplus could be covered by net receipts from invisib'Les, particularly f'rom merchant shipping. However, in the years 1930 to 1933 and again for a few years after 1936 Japan apparently had to export significant amounts of gold to cover the remaining deficit. In the decade 1929 to 1939 Japan's monetary gold reserves declined from $542.5 million to $163.6 million. As already indicated, the large postwar deficits on commercial account were covered by U.S. aid and later by various forms of special dollar disbursements in Japan. Because of the destruction of the Japanese merchant marine during the war, Japan has actually had a net deficit on the transport account which amounted to ',?215 million in 1951 and dropped to $67 million in the first half of 1952. An abbreviated form of the balance of payments on current accolunt for recent years is given in the table below.2 Table 29 Balance of Payments on Current Account (in millions of dollars) 1952 _______ - -°1Jan.-June Re- Play- Bal- Re- Pay- Bal- Re- Pay- Bal- ceiPts ments ance ceipts mernts ance ceiRts ments ance Cormrercial Trade (f.o.b.) 829 886 -57 1355 1647 -292 690 824 -135 Special Procure- ment Goods 50 - /50 227 - /227 139 - /140 Normal Invisibles 152 131 /21 187 345 -158 86 143 -57 Allied Forces, Special Procure- 102 /102 396 - /396 278 - /278 ment Services,etc. U.S. Aid a 360 _ z - _ 157 Total 1493 1017 /476 2322 1993 /329 1197 967 a230 a/ i.e. aid supplied in the form of goods paid! fromn appropriations by U.S. Congress. ZJ A fuller statement of the balance of payments appears in Annex 5. The balance of actual foreign exchange receipts and payments by type of settlement has been as follows for the past two years (in millions of dollars): Dollar Sterling Open Account Total 1951 1952 1951 1952 1951 1952 1951 1952 Current Transactions Goods -667 -559 /133 /64 /116 /66 -428 -429 Services /730 /795 ,10 -4 -1 /1 /739 /793 Capital Transactions /15 -83 /4 -57 - - /20 -141 Net Balance X63 /153 /147 X3 /115 /67 /331 /223 Capital Movements It will be noted that these figures indicate an outflow of capital in 1952. This is attributable not only to an outlay of 525 million on Japan's capital subscription to the IBRD and INF, but also to investments of the Foreign Exchange Fund in U.S. and U.K. securities and IBRD bonds. Aside from these "capital exports" there has been only a negligible amount of Japanese investment abroad. In fact, there has been a net inflow of private capital. The government has sought to encourage the importation of private caoital under a Foreign Investment .Law enacted in 1950 and amended in 1952. Under this legislation the i:ncome from investments properly "validated" by the government may be remitted abroad and the principal may be repatriated in five annual installments of 20% each, beginning two years after the investment is made. M,ost of the private foreign investment has been "in kind". It has particularly taken the form of technological assistance contracts under which foreign concerns have placed at the disposal of Japanese firms patenrt rights or other techno- logical information and services against royalties or a share in the profits or sales proceeds. In the period 1949 to December1952, inclusive, 211 such contracts, of which 161 with American firms, wxere concluded. They have been an important instrument in "updating" Japanese industrial technology. In the same period foreigners acquired shares in Japanese companies to a total value of Y9.0 billion (1i25.0 million). Foreign investments in the form of loans amounted to :12.0 billion (033.3 million) and foreign acquisition of real estats to 14.8 billion (q51:3.2 million). Only a rela- tively small portion of the total private investments in these categories took the form of actual foreign exchange - $0.5 million in 1949, $1.5 mil- lion in 1951 and >25.1 million in 1952.S/ 36/ See Annex 6 for detailed tables on foreign investment by type and means of payment. - 59 - Pa ments with the Dollar Area The factors responsible for the large payments deficit (excluding special dollar income) with the dollar area have already been set forth and therefore need no further elaboration. It might be mentioned, however, that total imports from the dollar area might havre been somewhat smaller if the government had elected to use its foreign exchange allocation system to compel importers to buy in non-dollar areas irrespective of price. The government did not by and large find it desirable to take such action in view of its possible adverse effects on costs of production in Japan and in view of the large dollar income resulting from special U.S. dollar dis- bursemnents in Japan. Thus no drastic action was taken to compel large purchasers of Pakistani and Brazilian cotton as long as the price of such cotton was considerably higher than that of U.S. cotton. At the same time, Japanese exporters often found it more prolitable to export to the non- dollar area because of the higher prices vwhich could be obtained. The government tried to counteract this trend to some extent by depriving ex- porters to the non-dollar area from July 1, 1952, of the right to retain a small proportion of their foreign exchange proceeds for their own use. Exporters to the dollar area, on the other hand, were permitted to retain 5% to 15% of their foreign exchange proceeds (depending on the type of export) wvhich they could not sell but could use themselves for certain kinds of payments. The ssystem, however, did not provide a significant incentive to dollar exports, especially since regular allocations of for- eign exchange for dollar payments have not been severely restrictive. In the spring of 1953 the exchange control authorities were apparently planning to extend the foreign exchange retention system once more to the non-dollar area in view of the adverse turn which payments relations had taken par- ticularly with the sterling area. Payments with the Sterling Area With the sterling area Japan for some time accumulated a considerable surplus which for the entire year 1951 amounted, in dollar equivalent, to $146.7 million, and for the first half of 1952, to t145.1 million. In part this was due to the great demand for Japanese exports under the conditions of scarcity following the Korean wvar. In part, however, it was also attrib- utable to a new agreement regulating payments with the sterling area con- cluded in August 1951. This agreement abrogated the provision which had previously required the settlement of balances in dollars and broug Hong Kong, an important entretiot for Asiatic trade, within the sterling payments scheme. The subsequent rapid accumulation of sterling balance by Japan created anxiety both within the sterling area and in Japan. Import re- strictions were adopted ty sterling countries both to meet the sterling area's general balance of payments difficulties and to redress the balance with Japan in particular. Even the Japanese government put into effect some restrictions on expcrts to the sterling area. As the result of the cumulative effect of these measures Japanese exports fell sharply in the second half of 1952 while imports continued to increase somewhat. In the second half of 1952 Japan had an overall sterling deficit of $86.1 million, - 60 - and in the first four months of 1953 alone the deficit rose to $126.5 million largely because receipts for exports were 62.5% lower than in the corresponding period of 1952 while payments for imports were actually 12.9% greater. This large sterling trade deficit, which caused a sharp decline in sterling reserves by the equivalent of $222.6 million in the period July 1952 to April 1953 inclusive, is unlikely, however, to continue indefinitely. In April 1953 a new agreement was reached under which Japan will be permitted exports valued at L 180 million payable in sterling and will allow imports tota j ing E 211 million against paynent in sterling during the year 1953.37/ As part of this arrangement restrictions on the importation of Japanese goods have been relaxed in the sterling area. Since this relaxation will not affect the actual volume of Japanese ex- ports for some time, arrangements were made in M,lay 1953 for temporary credit accommodation in London to relieve the stringency in sterling ex- change. Payments with the Open-Account Area With the open-acecount area, including, among others, Formosa, Indonesia, Thailand, the Philippines, Sweden, France, W,Gest Germany, Brazil and Argentina, Japan's payments relationship has followed about the same trend as with the sterlirg area. There was a substantial surplus amounting to $115.4 in 1951, followed by another surplus of $60.7 million in the first half of 1952. The Japanese authorities became worried about these surpluses on bilateral payments accounts because it tas not generally possible to use the surplus on one accourt to meet a deficit on another account. Only occasionally could agreement be obtained to use surpluses for imports from other countries, and it wes difficult to enforce provisions requiring cash transfers in the event the "swing margins" in bilateral agreements were exceeded. With Indonesia, for example, a large surplus in excess of the permissible "swing" was e,ccumulated, but immediate payment of the excess could not be enforced.--" In the second half of 1952, however, the aggregate net surplus with the open-account area fell to only 16.5 million, and in the first four months of 1953 there was an actual deficit of $36.8 million. As in the case of the sterling area, Japanese exports dropred while imports continued to rise. In the future it miay be expected that accounts will be kept in closer 37/ The total of permitted Japanese exports would be about E 33 million less than in 1952 but about E 29 million more than the annual rate in the second half of 1952. The planned volume of Japanese imports against sterling would be b 21 million more than in 1952 but at about the same rate as in the second half of 1952. 38/ Provisions of bilateral payments agreements and statistics on the actual balances which have accrued under these agreements are given in Annex 7. - 61 - balance, since Japan cannot afford to accumulate large inconvertible balances. Japan is considerably handicapped by the necessity of having to balan4ce its accounts on a bilateral basis with each of some 16 open-account countries. This is a far more serious problem than balancing its payments with the sterling area, for in the latter case Japan does not need to balance its accounts with each sterling country individually. Prospects fcr a Closer Balance of Internationa:L Payments Apart from special dollar income, Japan's international transactions, it will be recalleci, showed a deficit of about $460 million in 1951 and of $600 million in 1952. What are the prospects that this deficit can be narrowed and even eliminated? In order to evaluate these prospects the Economic Counsel Board, an agency of the Japanese Government, has attempted to project a balance of payments for 1957. This -projection anticipates that the 1952 deficit can be approximately halved toD a figure of about $330 million, nearly all of which would be a dollar deficit. In other words, if Japan is to make ends meet in 1957, there would still need to be U.S. procurement of goods and services or other forms o:" assistance to the extent of approximately $300 million. The projected balance of paymrents for 1957, as compared with that for 1951 (complete figures for 1952 are not yet available), is set forth in Table 30. - 62 - Table 30 ?rg,ected Balance oL PaZIents for 1957 I,in millions of dollars) ........_ Total 19 51 1957 Receipts layments Balance Receipts PaXments Balance Merchandise 1084 1736 -652 1570 2080 -510 Invisibles 296 a/ 107 /19 388 208 _ _80 Total 1380 l134 -463 1958 2288 -330 Dollar Lrea_ __ ____ 1951 221957 Rec2jpts 2ayMnts Balance Receipts Paents Balance Merchandise 254 1027 -773 463 900 -437 Invisibles 192 82 /110 25 _12 /130 Total 446 1109 -663 722 1029 -307 Other C'r n-re Areas =1MI 1957 Receipts &eMnts Balance Receipts Payments Balance Merchandise 829 708 /121 1107 1180 -73 Invisibles 101 26. /75 129 _ 79 J50 Total 930 734 /196 1236 1259 -23 a/ Includes a small amount of non-monetary gold movements which are not included in the currency breakdown. Note: The figures for 1951 differ from previously showm balance of payments figures because they were adjusted to make them comparable with the projections for 1957. The differences are as follows! (1) Merchandlise paym,rient figures are based here on c.i.f. imports rather than f.o.b. imports as in the previous table. (2) Since the importsfigures are shown here c.i.f., credit is taken on the receipts side under invisibles for that part of the total freight and insurance on imports which was earned by Japanese ships and companies. Con- versely import freight and insurance earned by foreign ships alnd companies hap been deducted from invisible payments since it is already included under merchandise paymnents. This accounts f'or the much rore favorable invisibles position in these figures as compared with balance of paymlnents figLres shown previously. - 63 - In this projection imports and exports are valued on the basis of prices prevailing in September 1952. This in itself may be a rather optimistic assumption, since the prices of exported rrmachinery and chemicals in particular may have to come down significantly if, as is anticipated, Japan is to export a much larger volumre of these products than in the past. The projection assumes that international trade in general will continue to expand and that development plans in other countries, particularly those in the Colombo Plan area and southeast Asia, will go forward and thus furnish Japan with a growing market and source of supplies. It does not as- sume, however, that there will be a significant revival of trade with China. Such a revival is not necassarily precluded, but in view of current uncertain- ties it is well-nigh impossible to forecast its extent and character. Some coal, for example, is like:Ly to be imported from China and Russian-held Saghalien in the near futu:e, and in the lonr.er run Japan may once again be able to obtain not only coal, but also soya beans, salt, iron ore and perhaps even rice from China. It should be kept in mind,, however, that future trade with China may be radicallly different from prewar trade in respect to both its composition and its terms. Communist China is stressing industrial development, particularly expansion of heavy industry., and is therefore likely to have fewer raw mat,erials available for export and will presumnably want to exchange its exports not so much against; consumer goods such as textiles but against capitEil equipment. Moreover, Japan will be unable to dictate the terms of trade as in the past, anad will have no advantage in free and equal trade bargaining othler than that inherent in geographic propinquity to China. The projected volume and composition of Japan's foreign trade in 1957 rest in turn on certain assured levels of domestic production which also take into account the probability that the population will increase to about 91,360,000 and, that per capita consumption will rise at an annual rate of approximately 2%. Table 31 shows the increase in production anticipated by 1957 in relation to 1951. - 64 - Table 31 Index of Production Anticinated for 1957 (1934-36 - 100) _ Percentage 1951 1957 Increase 1951-57 Industrial Activit 136.1 178.6 31.2 Public utilities 185.6 250.0 34.7 Industrial production 130.2 170.0 30.6 Mining 122.6 142.2 16.0 Manufacturing 130.8 172.9 32.2 Food 106.2 143.7 35.3 Textiles 65.6 78.5 19.7 Wood 152.4 173.4 13.8 Chemicals 128.4 176.0 37.1 0 Rubber & leather 95.4 110.6 15.9 Ceramies 143.5 180.4 34.1 1Metals 172.9 224.7 24.2 IMchinery 180.5 238.0 31.'9 Agriculture Forestry and Fisheries 102.8 119.5 16.5 Agricultural production 100.4 116.6 16.1 Crops 108.4 121.2 11.8 Raw silk 28.1 40.9 45.5 Livestock 108.8 163.9 50.7 Forestry products 129.3 125.5 -2.7 Fishery products 100.9 136.3 35.1 The projected volume of exports and imports as well as the anti- cipated receipts and payitLents on 'invisible" account will now be examined in some detail. 1. Exports Tle Economic Counsel Board envisages an overall increase in exports of 45% / by comparison mrith 1951, which means that exports will have to rise at an average annual rate of about 8%. This expectation is sanguine but perhaps not unattainable. In any event, it can be attained only if Japan avoids inflation which would raise prices, and if vigorous efforts are made to reduce costs through rationalization of industry. 39/ It should be noted that the increase is cnly 22% if exports of goods under special procurement contracts is added to the 1951 total. - 65 - With respect to the comnosition of exports, it is expected, not unreasonably, that Japan will no longer export iron and steel in 1957, but will use its iron and steel for the manufacture of machinery, equip- ment and other products which will require more processing. It is also assumed that the volume cf cotton textile exports will not exceed the postwar peaks attained in 1950 and 1951, namely about 1.1 billion square yards. The composition cf exports is expected to shift in the direction of much higher exports of artificial textiles, chemicals, machinery and equipment and ceramics, all of which require much smaller imports in re- lation to their value. The proportion of textiles in total exports is expected to decline from 44% in 1951 to 36% in the fiscal year 1957 while that of machinery and equipment is to increase from 8% to 21%. It is obvious that this shift can be accomplished only if a determined and successful effort is made to make Japanese prices for such items as ma- chinery and equipment more competitive in the international market. The projection envisages an increase in exports to the dollar area of as much as 82% over 1951. Possibilities for larger dollar exports are foreseen in a wide variety of products. Estimates of increases in dollar exports of individual commodities are relatively modest, but taking the full list, the total adds to a substantial figure. The list includes silk and silk products, cotton cloth, fish, tea, fish liver oils, pearls, furs, bamboo products, bristles, pottery, glass, tankers, cameras and optical equipment, sewing machines, toys, and various other manufactured consumer goods. Undoubtedly, there are considerable possibilities for increasing dollar exports in these lines. Yet the estimate that in the aggregate they could provide additional dollar earnings of over $200 million annually appears questionable. From this standpoint the Board's projections appear unduly optimistic. Non-dollar exports are expected to increase 34%. Iarger shipments of a long list of products are anticipated. In the case of most commodities the projected increases are modest. The principal sources of larger non- dollar earnings are expected to be chemical fertilizers, synthetic textiles (mainly rayon and staple fibers), and especially machinery and engineering equipment. The machinery and equipment category, which also includes vehi- cles, rolling stock and vessels, accounts for roughly two-thirds of the projected total increase in non-dollar exports. In most cases, including fertilizers and synthetic textiles, the projected -increases do no appear unreasonable in terms of the potentialities of non-dollar markets especially in Asia. The assumed increase in exports of machinery and equipment, however, raises questions relating both to the absorptive capacities of non-dollar markets and the competitive position of Japanese exports. In 1951 non-dollar exports in the machinery and equip- ment categories amounted to about $75 million. Adjusted for September 1952 prices this figure would be reduced to about $65 million. For 1957 exports of machinery and equipment to non-dollar areas are estimated at $258 million representing about a fourfCold increase. - 66 - The most promising opportunities for increasing non-dollar exports of Japanese machinery and equipment appear to be in the expanding markets for capital goods in Asia. So far, however, Japants share in these mar- kets has been relatively small. In 1951 the countries of Asia (exclud- ing the iviiddle East, Chinia and Korea as well Eas Japan ) imported the equivalent of about $675 million of machinery and parts, electrical equipment and vehicles from the principal suppliers, namely the U.K., the U.S. and Japan. Of this Japan supplied onily about $50 million or about 8fo. The largest slupplier was the U.K. with about 606/o of the total and the U.S. accounted for $220 million or about 324;. Therefore, while a steady expansion in the markets for capital goods in Asia can be expected, it will still be necessary for Japan to supply most of the expansion andl thus obtain a much :Larger share of the markets if its noni-dollar exports of machinery and eqaipment are to approach the projected figure of $258 million, A substantial increase in the importance of Japan as a supplier of capital goods wiould be of great advantage to the rest of Asia; especially if through higher 'Levels of trade with Japan the countries of Asia were able to reduce their dollar expenditures on capital equipment. This would presuppose, however, a rarked improvement in Japan's international com- petitive position in the capital goods fields. 2. Imports Imports as a whole are expected to increase only 20$ by 1957. This relatively small rise in imports is ascribed on the one hand to a shift in production to goods for which proportionately less imports are necessary, and, on the other hand, to the anticinated irncrease in agricultural output. The Economic Counsel BoErdts projection, for example, assumes that the Five- Year Agricultural Production Program wvhich has been worked out will be put into effect and that 30J of the production targets will be achieved. As will be indicated in greater detail later, this is not an unreasonable assumption. If it is valid, the import requirements of foodstuffs by 1957 would be 2,517,000 tons in brown rice equivalent or about 494,000 tons less than at present. In an effort to reduce the dollar deficit a considerable shift in imports to non-dollar a:reas is envisaged. Thus imports from the dollar area are to drop 125a below 1951 levels while those from the non-dollar area are to increase 67%. The qcantity and source of imports of principal foodstuffs and raw materials for 1957 are set forth in Table 32, together with the comparative figures for 1951, At first glance the large increase in imports of coal and iron ore and the continued importation of some portion of these from the dollar area seem startling. It should be remembered, howzever, that the contemplated increase in steel production wshich would be necessary in line with the general rise in industrial prod'uction could be accomplished only by a much sharper increase in pig iron production, necessitating larger imports of iron ore and coking coal, in view of the Drogressive exhaustion of war scrap. 4O/ 40/ A considerable volume of scrap might become available for import from the west coast of the United States, but this import would, of course, involve dollar outlays. - 67 - Table 32 Volume and Source of_ Prnial ImDorts 1951 1957 Total Dollar Non-Dollar Import Re- Dollar Non-Dollar Unit Imports Share Share glirement Share Share Raw Cotton 1000 bales 1674 1230 444 2000 1200 800 Wheat 1000 tons 1654 1593 61 1333 933 400 Barley n 899 743 156 681 470 211 Rice n1 7)9 235 563 840 0 840 Sugar n n 554 362 192 940 390 550 Soy beans " " 310 309 - 390 390 0 Petroleum and petroleum- n kilo- products liters 5298 4121 1177 6794 4534 2259 Coal t tons 1935a- 1355 580 4200 3000 1200 Iron ore " " 3089a/ 1202 1887 7000 950 6050 Salt t' " 1798 1018 780 1700 0 1700 Phosphate Rock " 1074 868 206 1150 780 370 Wool " bales 419 41 379 660 0 660 Pulp "tons 95 58 37 0 0 0 Hides t tons 42 16 26 39 7 32 aJ Figures are from customs statistics and differ from those in Table 7 which were obtained frcm the iron and steel industry. Whether the volume and sources of imworts by 1957 will actually conform to these projections is, of' course, problematic. In general, however, it is by no means improbable that such non-dollar supplies can be developed in five years time. The expected non-dollar rice imports should materialize, for example, if production in Tiurma and Indo-China reach 90% of prewar levels and production targets in the Colombo Plan countries are generally attained. There are large potential non-dollar supplies of coal and iron ore. In fact, it is possible that the Economic Counsel Board has underestimated in some respects potential non-dollar availabilities. For example, more wheat might be supplied by Australia; the probable availability of iron ore from M4alaya, India and the Philippines may well bE underesti-mated; more non-dollar coal might be im- ported if transport facilities in India are improved and coal resources in Formosa and particularly Australia are developed; and some soya beans might in the end be procured from n4nchuria. In theory, at least, further shifts of about $100 million might be possible. On the other hand, Japan might be unable to pay for such a further "ncrease in non-dollar imports, since the estimate of possible exports to the non-dollar area, particularly of capital goods, seems already excessively sanguine. - 68 - 3. Invisibles A picture of the development of the inviLsible items in the balance of payments expected by t:he Economic Counsel Board is afforded by Table 33, showing the payments and receipts projected for 1957 as compared with those for 1952 estimated on the basis of actual figures for 9 months. Table 33 Projection of Invisibles in the Balance of Payments (in millions of dollars) Estimated 1952 a/ Pro.ected Fiscal Year 1957 Receipts Payments Balance Receipts Payments Balance * Current Transactions Transport 166.4bJ 43.2 /123.2 285.Cb/ 45.0 /240.0 Insurance 2.5 3.0 -0.5 4.0 3.0 A1.0 Travel 7.6 5.3 /2.3 13.2 8.0 ,L5.2 Investment Income 4.2 3.0 /1.2 7.0 5.0 /2.0 Govt.Transactions - 6.0 -6.0 - - - Donations 12.2 - /12.2 21.1 - /21.1 Other 14.2 40.0 -35.8 24.7 57.0 -32.3 Sub-total 207.1 100.5 /106.6 355.0 118.0 /237.0 Capital Transactions Domestic capital lO.C 132.7_ -122.7 9.0 48.0 -39.0 Foreign capital 4.3 4.1 /0.2 24.0 43.0d/ -19.0 Sub-total 14.3 136.8 -122.5 33.0 91.0 -58.0 Total 221.4. 237.3 -15.9 388.0 209.0 4179.0 a/ Omitting special dollar receipts. b/ Including transportation charges cn impcrts carried in Japanese ships. c/ Including A50 million for capital subscription to IMF and IBRD and an investment of $75i,964,000 in U.K. Treasury bills and U.S. Treasury notes made in anticipation of resuming repayment on the Japanese external debt. d/ Including provision for payments on foreign bonds. - 69 - Most of these projections appear reasonable. Increased transport earnings may be anticipated in view of the plans to continue rebuilding the Japanese merchant fleet. Net inc'-me from travel or tourism may in fact be somewhat underestimated, although in view of the smallness of the amount any revised estimate would not in any event s:ignificantly affect total foreign exchange receipts. While the projected payments take into account Japan's obligations on her external bonded debt,, exception can be taken to the total on the ground that it makes no allowance for repayment of the debt incurred with the United States for postwar supplies or for the discharge of reparation obligations. Japan resumed payment on nearly all of her prewar external debt in December 1952 under the terms of an agreement; reached with representatives of sterling and dollar bondholders on September 2S, 1952. This agreement covered sterling bonds with an outstanding principal (as of June 30, 1952) of E76,275,75741/ and interest in arrears of I.43,387,51 / and dollar bonds with an outstanding principal of $76,361,300 and interest in arrears of $51,251,595. These incluide not only Japanese government bonds, but also municipal and corporate bonds for which the government assumed liabili-ty during the war as enemy interests. As a tokern of its intention to meet all its obligations and as a means of strengthening its credit, the Japanese government made a settlement closely conformirng to the original contracts. In general maturities of the bonds were extended by 10 years, and those on sterling issues carrying a dollar option clause were extended by 15 years. Sterling bonds with a dollar option clause are to be paid at the full sterling equivalent of the dollar at the time the payments originally fell due, and the British government lhs waived its insistence on payment in dollars as long as general payments between Japan and the United Kingdom are settled in sterling. The dollar debt is to be entirely repaid by 1977 and will involve average annual interest and, amortization charges of about $11 million over the first 10 years. The sterling eebt will not be entirely paid off until 1991 and entails average annual charges over the first 10 years of about E1.8 million although in one fiscal year 1961 - total charges will be L34.5 million.12 No settlement has yet been reached on (1) the French tranche of the 4% Japanese government loan of 1910 amounting to Frs. 450 million of which L/ Revalued under currency option clause. 4S/ A detailed schedule of annual charges appears in Annex 8. In addition to the debt mentioned above Japan obtained from the U.S. Export-Import Bank in April 1953 a 15-month $40 million cotton credit at 3-1/2%. As of Yiay 31, 1953 about $12 million of a similar credit obtained in 1931 was still outstanding. - 70 - Frs. 383 million is still outstanding, and (2) the French tranche of the 5% City of Tokyo loan of 1912 which amounted to Frs. 100.9 million. In settling the first of these the "gold yen" clause has been the principal difficulty. On the second, which was never taken over -by the Japanese governmernt, separate negotiations have been undertaken with the French bond- holders by the City of Tokyo. Agreement on this issue has been held up by a dispute over the validity of an agreement made in 1939 under which the old bonds, which carried a sterling payment option, were to be exchanged for new "valorization bonds" with an increased nominal amount in French francs. It is dificult to forecast when an agreement on these two issues will be reached.-3 The balance of payoments projection made by the Econormic Counsel Board makes no provision for servicing the debt of approximately $2.1 billion which Japan owes the United States for civilian supplies paid out of U.S. Congres- _sional aropriations. No negotiations have taken place yet on this so-called _ GhRIOA& debt. The United States has, however, made a settlement on a similar debt with Germany. If an agreement should be reached along the same lines with Japan, the debt would be scaled down by about 62-1/2%, would carry interest at 2-l/2% and be repayable over 30 years, including a 5-year period of grace on payments of principal. Interest enud amortization charges in that event would be about $36 million per year. Japan's ultimate raparation obligation is very difficult to forecast. Under Article 14 of the Treaty of Peace, Japan is obligated to enter into negotiations with Allied Power who desire reparation and whose territory was occupied and damanged by Japanese forces "with a view to assisting to compensate those countries for the cost of repairing the danage done, by making available the services of the Japanese people in production, salvaging and other work for the Allied Powers in question." It was specifically pro- vided' that "Such arrangemsnts shall avoid the Lmposition of additional liabi- lities on other .llied Pogwers, and, where the manufacture of raw materials is called for, they shall be supplied by the Allied Powers in question, so as not to throw any foreign exchange burden upon Japan." 43/ The amounts involved are in any event not 'Large. Of the French tranche of the 1910 loan only 25% is actually held in France. Under French proposals this portion of the debt would be revalued to about 3.75 billion of current French francs ($10.7 mnillion); under Japanese proposals the total would be Frs. 95.8 million ($275,000). The 1912 loan would be revalued to Frs. 3.3 billion ($9.4 million) under French proposals and to Frs. 195 million ($600,000) under Japainese proposals. The latter amounts would be reduced, however, if, as expected, it develops that a significant portion of this loan is no longer held in France. L/ Named for the heading "Government and Relief in Occupied Areas", under which most of the money for such supplies was appropriated. - 71 - Although negotiations have been carried on, particularly with the principal claimants, Indonesia and the Philippines, it has been impossible to reach any agreement fixing the total of reparation claims which should be satisfied. The only undertaking to provide specific reparation was made with the Philip-ines for whom Japan agreed on March 12, 1953, to provide services and equipment to salvage ships sunk in Philippine waters. It is probably only by processing or manufacturing materials furnished by repara- tion claimants that Japan can in theory furnish much reparation. The Japanese government is likely, however, to resist extensive commitments of this type on the grounds that such manufacturing is likely to reduce the volume of commercial production as long as Japan suffers from a power and fuel bottleneck and that the resulting products may significantly undercut Japants regular commercial sales abroad. 4. Conclusion On the whole it may be concluded that the Economic Counsel Board's projection of the balance of payments for 1957 is overoptimistic on several counts. If allowance is made for repayment of the GARIOA debt, some repara- tion payments and overestimates of revenue from dollar exports and possibly other sources, it is likely that the 1957 deficit will be closer to $400 million than $300 million. In the longer run, it is possible that a further reduction may be effected as a result of accelerated development of the raw material and foodstuff resources of non-dollar areas, particu- larly of southern Asia and of Oceania, and, to the extent that future changes in world political conditions may permit it, by some extension of trade with the mainland. In the face of all these uncertainties, it would hardly be prudent, however, to anticipate that Japan will be able, particularly in the near futlo, to balance her international accounts at a tolerable 1)--1 wtiout the continued availability of some sort of S> ^;^w oui±ar disbursements. - 72 - V. INV-STMEUT REQUIRMNETS AND PROBLEMS In order to make Japan more self-supporting along the lines projected by the Economic Counsel Board and to urovide for a growing population sub- stantial investments will be necessary over the next five years. As already indicated, large increases in industrial and agricultural production will be needed, and these in turn necessitate expansion in power supply, transport capacity and communicatio:as. Some analysis of investment requirements and the problems which they create is therefore in order. Electric Power Undoubtedly a rapil expansion of electric power supply will have to take Dlace not only in view of current shortages which have necessitated rationing and curtailment of loads during the Low-water period in the winter, but especially in view of the considerable increase in industrial production contemnlated over the next five years. On the basis of a rather careful survey made with the help of two experts supplied by the Edison Electric Institute it has been estimated that oeak load requirements at the generating end will rise from 7.8 million KI in 1952 to 10.4 million in 1957 (December of each year) and that the annual generation required will have to increase from 45.6 billion KWH in the fiscal year 1952 to 59.0 bi:Llion in 1957. If power from captive or industrial power plants is included, the total energy output required is expected to rise from 52.7 to 67.1 billion KWH in this period.L/ This total increase of 33.3% in neak load and of 27.350 in total electric power production is very 'Large. According to government plans it will require an increase in total installed capacity from about 11.3 million KW at the end of the fiscal year 19152 to 16.3 million at the end of 1957, or by 400. The government's power program calls for the installation of 5,461,500 Kw in the years 1952 to 1957 inclusive (h,971,000 KW if 1952 is excluded) and a total outlay of at least T852.8 billion (02.35 billion). Under this program the capacity would be adequate to meet peak demand anticipated for 1957 without, however, leaving any reserve margin or taking into account a shortfall of hydroelectric power resul1;ing from subnormal stream flow. VWhile the magnitude of the program appears on the whole justifiable on the basis of expected power demand, the heavy expenditure involved does make it desirable to review re- quirements carefully in order to determine whether some economy in consuamption cannot be effected. The government has already considered it advisable to eliminate from its plan some 600,000 KlWi of reserve capacity provided in a program preTared by the private power industry, and has effected a further reduction of 600,000 KW in the industry's plans by allowing for a somewhat L5/ At the consumption end total power requirements will increase from 40.8 billion MJH in L952 to 53.4 billion in 1957. - 73 - higher annual load factor in 195746/Attention might well be given to the possibility of effecting further economies by reducing to some extent the projected power demand for lighting and by limiting peak demand through curtailment of the operations of heavy industrial consumers of power such as the aluminum and chemical industries during periods of low-water supply. The peak demand foreseen for 1957, for example, implies a 43% increase in demand for lighting over the year 1952 as compared with an increase of only 36% in total demand. Through appropriate increases in the power rates for lighting it may be oossib'Le to curtail the projected demand for lighting. It is quite possible also that heavy industrial power consumers will still have excess capacity avai:Lable in 1957, thus permitting them to curtail operations during periods of peak demand without impairing the possibility of attaining production targets. Finally, it is not clear whether the projected increase in generating capacity makes allowance for an expansion in "effective capacity"that might result from the rehabilitation and moderni- zation of existing thermal plants. A breakdown of the capacity to be developed by the private power companies, the Dower DeveLopment Comoany, local governments and industry is given in Table 34, togesther with the cost as estimated by the government. The emDhasis in this program on hydroelectric power development is attributable to the shortage of coal in Japan and to the presumed cheapness of hydro power. Table 34 Power Program Projected by the Government (1952-15 inlsive7" Private Power Power Development Local Companies Company Governments Industry Total Additional Capacity (000 MI) Hydro 2,177.6 1,285.5 344.4 173.8 3,981.3 Thermal 1,252.9 - - 227.6 l1480.5 Total 3,430.5 1,285.5 344.4 401. 5, Expenditures (billion yen) Generating Facilities 277.3 115.2 38.3 29.3 460.1 Transmission and dis- tribution Facilities 292.8 8.8 - - 301.6 Improvements 91.0 - - - 91.0 Total 661.1 124.0 .3 29.3 852.7 / / Includes 'F490.0 billiorn scheduled for completion in 1952. ~/ Includes X154.2 billion scheduled to be spent before 1953, but excludes Y73 billion in anticipated expenditures on projects that would be completed after 1957. 46_/ Thle government's plan provides for an annual load factor of 66.4,% by 1957 as compared with 64.5% in the plan projected by the private power industry. - 74 - Thermal power canacity is needed, however, to stabilize the Dower supply even though the Government has included in its hydrc program as many reservoir projects as possible in order to "firm up" the suoply of hydro power to some extent.4-I Part of the addlitional thermal capacity will apparently be made available through improvement of boilers and auxiliary plant in existing thermal stations. Under the program for "improvements" the private power companies plan to spend considerable funds on equipment designed to reduce the "power loss" from about 26.4% of production in 1952 to 22.3%6 in 1956. This power loss (the difference between power produced and despatched and apparent use at the consuming end) has been bhLgh in Japan because of (1) the theft of power by the large number of conswuers who are charged a flat rate on the assumption that they will use only a small, limited amount of power for lighting, (2) the high proportion of hydro power to total production, necessitating transmission over long distances, (3) the high proportion of "small power1 demand to total consumption,requiring low-voltage terminal loads, and (4) considerable overloalling of transmission and transformer facilities since the war. The financing of such a large program will undoubtedly prove difficult. Public funds are to be used to finance the increase in capacity undertaken by the Power Development Company and the local governments, and a considerable amount of such funds will have to be made avai:Lable through the Development Bank to assist the private oower companies in their expansion program. It may well prove desirable to oermit the private companies to do more self- financing by authorizing them to raise somewhat the existing low power rates. At oresent, prevailing decreciation allowances are inadequate because of serious undervaluation of power plant and equipment. The government has admitted that power rates will in any event have to be increased 15% to 20% on the average by 1957 in order to allow for the much higher cost of new generating and cLtrib-iting facilities. It will be noted thiat over a fifth of the new capacity projected is to be constructed by the Electric Power Develoioment Company. This Company was established by a law enacted on July 31, 1952, to carry out large power projects which oresumatly are beyond the capacity of each of the nine private power companies. The generating facilities thus established may be leased or sold to private companies, or the power generated may be sold for distri- bution by private companies. The Company has an authorized caoital of X100 billion of which X99.5 billion is to be subscribed by the government and 0.5 billion by private power companies. 1he capital actually paid in is 45 billion of which all but *50 million has been paid by the government. In addition, the Comoany is authorized to issue bonds or contract long-term loans up to 156 billion and may borrow abroad with the guarantee of the government. 48/ A list of such reservoir projects on which planning is claimed to be sufficiently far advanced to initiate construction apnears in Annex 9. - 75 - Industrial Investment: Coal and Steel The existence of considerable idle capacity in most branches of industry would seem to make it possible to expand output without much new investment. Much of this nominal excess capacity, however, can be activated only after considerable exoenditures on repair and rehabilitation. ifloreover, rationaliza- tion of management and equipment is necessary in many industries if Japanese production is to become fully competitive in the foreign market. During the last year the intensification of competition attending the gradual return to a buyers' market has brought about a considerable reduction on the disoarity between Japanese and foreign prices of such items as chemicals, iron and steel and various types of machinery and equipment. Natural market forces may be expected to exert further pressure on Japanese costs and orices provided, a renewal of government subsidies or inflation does not diminish the incentive. The Japanese government and industry have become increaingly preoccupied with programs for "rationalizing" various industries. In many cases, however, such programs have apDarently been drawn up without adequate knowledge of the breakdown of costs of production which presumably they are designed to reduce. The widespread adoption cf detailed cost accounting in Japanese industry would thus aopear to be a. prerequisite to the adoption of properly conceived programs to reduce costs. A reduction of costs and simultaneous improvement of quality seems particularly necessary irL the iron and steel and coal mining industries, since the comparatively high cost and poor quality of the oroducts of these indus- tries affects costs throughout Japanese industry in general. Reference has already been made to the rationalization program covering the years 1951 to 1953 adopted by the iron and steel industry. In order to lay the foundation for a further modernization program the iron and steel industry had a study carried out by an American engineering team toward the end of 1952. The prospective large-scale clevelopment of IIalayan iron ore resources and the possibility of obtaining much larger supplies of Indian iron ore through exPansion of transport arid port facilities also indicate the likelihood that Jaoan will be able to import iron ore at a cost considerably lower than in the past. Ihe Ticonomic Counsel Board has estimated that pig iron production will have to increase from 3,474,000 tons in 1952 to 5,350,000 tons in 1957 and that crude steel output will have to rise from 6,988,000 to 7,660,000 tons during the same peri od. It is expected, however, that virtually all this output will be used at home and that it will be advantageous to exPort iron and steel only in the form of machinery and equipment and similar products. The coal industry hopes to invest about X146.5 billion over the next five years in order to raise output from a level of 43.3 million tons in 1951 to 55.5 million in ].957 and to reduce costs by about 18A. Costs would be lowered primarily through the expenditure of some Y49 billion on the sinking of 66 vertical shafts. Gradual replacement of the nresent inclined - 76 - shaft system of mining is expected to reduce substantially travel time to and from the coal face arnd ultimately to lower haulage costs. Daily output oer worker would rise from a nresent level of about 11 tons to 14.6 tons. It remains to be seen whether detailed cost estimates will support these calculations. The contemplated :increase in domestic coal production will not relieve Japan of the need to econiomize as far as possible on the use of coal through the development of hydroelectric Dower and electrification of the railways. Even with an output of 55.5 million tons in 1957, Jaoan will still need to import in the latter year about 3.75 million tons of high-grade coking coal and anthracite. Investment in Agriculture In view of the large foreign exchange outlays on imported foodstuffs, the adoption of all practicable measures to raise domestic food production would seem to be warranted. The Ministry of Agriculture has made a rather careful survey of the available land resources and framed, on this basis, a 5-year agricultural program designed to bring about a net increase in the production of rice and wheat of about 12 million koku (brown rice equivalent) or 1.8 million metric tons. If such a program were successful, import re- quirements could actually be reduced by about 720,000 tons despite increased domestic consumption resulting from the expected growth in population. The orogram can bie broken down as follows: Increase in Area Benefited Cereals OutPut (1000 cho) (1000 kohi, brown rice equiv) Expansion and Improvement of Agricultural Land Irrigation and drainage 2,1h6 5,508 Land improvement 1,672 4,779 Reclamation (other than marehes) 338 1,523 Marshland reclamation 28; 763 Sub-total 4,139 12,573 Imorovenent in Cultural Practices - 4,453 Gross Total 17,026 Less withdrawal of cuLltivated land - 5,000 Net Total 12,026 DesDite the intensive use of land in Japan, there are still considerable areas which can be converted to agricultural use by such works as clearing, terracing, construction of roads, drainage, etc. From these potentially - 77 - available areas the Ministxry of Agriculture has selected for reclamation those which, on the basis of estimated costs and results, can be economically reclaimed in its opinion. The drainage improvement program would cover about 664,0o0 cho in addition to 571,000 cho or. which projects have already been started. It would, above all, make oossible the drainage of' rice oaddies after the rice harvest in such a way as to nermit double cropping, The irrigation program would bring water to upland areas totaling 597,000 cho and improve water supplies for some 1.2 million cho. Over a considerable portion of thtese areas it would nermit a shift to rice culti- vation from croDs which are much less productive. In some areas, moreover, it has been impossible to have double crapping because the lack of adequate supplies of irrigation water has made it necessary to have water accumulate in rice paddies over a corisiderable period of t,ime in order to have enough water by planting time. Among other improvement measures are programs for top dressing of deteriorated rice land and readjustment of lancd holdings in order to make possible more intensive and efficient use of lanmd. easures'.to improve cultural oractices call for the use of better seeds, a campaign to combat damage 'oy disease and insects and the use of manure, fertilizers and other measures to raise soil fertility. Despite the high level of agricultural techniques which generally prevails in Japan, room for further improvement undoubtedly exists, and Japanese farmers, who are on the whole well-educated, are likely to respond to various government inducements to employ better practices. The whole program has been worked out in considerable detail and seems generally well-conceived. ihether its targets would be completely attained even if all the necessary funds were forthcomning may be doubted; and it has already been noted that the Thconomic Counsel Board has assumed that no more than 80% is likely to be achieved. This reduced target may well be within the bounds of practicability. if it can be achieved, it will make a signifi- cant contribution to the reduction of the dollar deficit. The total capital cost of the 5-year program for expansion and improve- ment of agricultural land has been estimated at %530 billion, of wjhich X188 billion would be contributed by the farmers themselves. Annual government outlays would have to increase from a level of Y20.5 billion in the fiscal year 1952 to an average of about Y60 billion in the following five years. In the original budget fcr 1953 the government proposed to make a start with this program 'oy increasing approoriations for this purpose to Y49.4 billion, Icnvestment in £ransport The general increase in production contemplated over the next 5 years will inevitably entail some expansion in transportation. Ihe nrincipal and most urgent recuirements in this field are those of the railways and the merchant marine. - 78 - The government-owned Jacanese National Railways, which in the fiscal year 1951 accounted for 713% of the oassc-nger and 985 of the freight traffic handled by all the railways, has a 5-year investment program totaling about Y294 billion. Included in this total are (1) Y38.3 billion for the electri- fication of 746 kilometers of main-line track (l,1666.2 kilometers out of a total of 19,849.6 kilometers were already electrified by hiarch 31, 1952), (2) X25 billion for the acquisition of Diesel locomotives and rail-cars, (3) X47.2 billion for the expansion of mainlinle capacity and increasing the capacity for transporting coal and commuters, and (4) X186 billion for re- habilitation of facilities and equipment, largely for the purpose of making good deferred maintenance. tflith such investments the railways expect to be able to cope with the anticipated volume of traffic. 'The proposed electri- fication and diesel-power program will help not only to reduce costs of operation, but they will have the special advantage of economizing on the use of coal which is expected to remain in scarce supply. It is estimated that the electrification program wi'l effect an annual coal saving of 921,000 tons and the diesel program, 394,00O tons. The financing of a railway investment plan of t Lis magnitude may well require some increase in freight rates and passenger fares. By 1952 freight rates had increased to about 170 times the 1936 level, but the rise was only about half that in general wholesale prices. The increase in passenger fares has fallen even farther behind that in wholesale prices. Rates were raised 10% to 13% late in 1952 but not enough to offset higher wages recently granted. Lven on the basis of rather inadequate depreciation allowances, the railways operated consistently at a loss in the postwar period until the year 1950/51. Out of capital expenditures totaling X120.6 billion over the fiscal years 194i9 to 1952 inclusive, only X71.5 was financed from the depreciation reserve. Nearly all of the balance had to be financed by govern- ment funds, I.Jith a much heavier investment program in the future the pro- portion self-financed wTill be much smaller unless rates and fares are raised. As production exnands, requirements for road transport will undoubtedly increase also. It seems inadvisable, however, to develop highway transport for long-distance haulage. Janan has a large fixed investment in an extensive railway network which with some additional investment can meet the basic transoort needs of the ocuntry. A shift to motor vehicles will tend to place a greater burden on the balance of nayments since virtually all of the motor fuel and much of the raw materials used in the production of vehicles must - be imported. Roads in Japan must be considered in the future, as in the past, primarily as a means of f'eeding and suoplementing the railways.,49/lhe current emphasis in Japan on the development of arterial highways accordingly seems 9/ Japan is still not extensively motorized. Although the total number of motor vehicles increased from 214,076 in 1937 to 696,113 at the end of 1952, there were at the latter date only 401,467 trucks, 24,306 buses and 251,462 passenger vehicles. - 79 - misplaced. Principal emphlasis should rather be put on better maintenance and improvemaent of the existing road network, much of which is in very poor condition. One migh; cluestion the wisdom of proceeding with plans to construct a broad 327-rnile express highway between Tokyo and Kobe which would cost no less than Tl14.5 billion and would require 424,000 tons of steel, 1,035,000 tons of cement and 4,700,000 l,oku of lumber. In the 1953 budget submitted to the Diet in June 1953, however, the government appears to have abandoned its plani to begin building this super-highwsay in 1953. More urgent is the further expansion of the merchant marine with ships built irn Japanese yards. In 1953 another 4-year shipbuilding pro- gram involving the addition of 300,000 gross tons annually to the merchant fleet, wTas launched. The yearly investment requirement is large - about Y52 billion - but may be justified since it will enable Japan to become a net earner of foreign exchange on transportation account. Plans have also bemn formulated to expand the capacity of Japanese ports from about 180 mill:ion tons at present to 267 million tons in 1957. Because of war damage present port capacity is below that of prewar years. There is considerable idle capacity in the ports facing the Sea of Japan owing to the decline in trade with China, 'ut at the same time other ports are almost fully utilized,. The projected five-year port expansion plans call for a total outlay of Y39,.6 billion, including Y18 billion for cargo-handling gear, sheds and warehouses. In addition there is a program for establishing industrial port areas which would involve totaL expenditures of Y5.2 billion by 1959 and private investments totaling about six times this sum. The latter program aims to reduce costs for industries using bulky materials transported by water. Since, hoii7ever, Japan generally possesses ample industrial capacity and needs primarily to modernize existing rather than to build new plants, the justification of large investments in industrial port facilities may well be questioned. On the other hand, some invest- ment to increase port capacity is apparently warranted. The Japanese goveniment is also planning to establish a Japanese international airline as a means of earning additional foreign exchange. In 1951 the Japan Airlines. was organized to operate a domestic service between Tokyo and the islands of Kyushu and Hokkaido. Another company is now being established 'o inaugurate services to Korea, Formosa, India, -North and South America, LEurope and Java over the next three years. A total investment of .21.3 million (Y7,668 million) is projected to acquire the necessary planes and 2'acilities abroad. The Japanese government expects that these international air operations will yield net foreign exchange earnings of 62,578,0o0 in the first year and $1lVl87,0O0 in the third year. If these expectations should mnaterialize, the investment would probably be justified. There is, however, reason for believing that they are based on an excessively optimistic evaluation of the volume of air traffic which a Japanese company would handle and, perhaps, an underestimation of the ejq)enditures involved. Moreover, international - 80 - air transport is an extremely competitive field in which even experienced comnDanies have difficulty in making ends meet. A Japanese company light well require considerable direct and indirect government subsidies. Thus it may be questioned whether Japan should venture into international air transport at a time when sD rnany apparently more urgent investment pro- jects have to be carried out. Investment in Comaimications Business is said to be considerably handicapped at present by the lack of adequate telephone comaunications. Telephone circuits are apparently overloaded and there are great delays in particular in completing inter- urban calls. As of August 1952 there was a backlog of applications for new telephones of 390,6h0, and. new applications at a rate of over 300,000 per year are anticipated. To meet this situation the Yippon Telegraph and Telephone Corporation, a public corporation, has proposed a five-year pro- ,ram involving the addition of 210,000 subscribers per year and the improve- ment of interurban conmmunications. The magnitude of this program is indi- cated by the fact that as of I'Iarch 31, 1951, there were only 1,369,007 subscribers. It would involve an annual investment expenditure of about 'i75 billion as compared with only a little over X30 billion in the fiscal year 1951. Although tie contemplated expansion is designed primarily to meet business needs,5°J it is doubtful that JapaLn can afford to undertake this entire program in view of the many other urgent claims on resources available for investment. Piousing Investment Aside from the urgent investment requireaents in the sectors of industry, transport and communications discussed above, there is an in- sistent and large demand for more investment in housing. Although per caDita consumption has by now generally recovered to prewar levels, housing accomnodations are much less adequate than before the war. About 320,000 new dwelling units are said to be needed each year to provide for the increase in families and annual replacement reqluirements; and this -ould not diminish existing overcrowded and inadequate hlousing conditions which are reported to have created a shortage of over 3 million units. The Ministry of Construction has projected plans for the construction of about 340,000 units annually, but this would require an annual investment of about Y225 billion per year as compared with an average of only about 50/ The number of resideni Eal telephone subscribers on 1larch 31, 1952, was only 6.5% of the total. - 81 - *100 billion in 1951 and 1952. Although such a program is clearly beyond Japants capacity to finance, investment in housing will no doubt have to exceed the volume in the past even if only the most urgent requirements are met. Implications of Large Investments The above review of investment needs in some of the critical sec- tors of the economy is necessarily incomplete but will serve to suggest the large magnitude of such requirements* Investment plans formulated in various government ministries and agencies and in many private sectors of the economy are in the aggregate clearly beyond the ability of the country to finance. Many of these' plans may well remain, at least in part, paper plans, but there is a tendency in Japan to press ahead with investments in all fields without adequate consideration of their comparative importance. Even if stated requirements are carefully screened in order to eliminate or reduce less essential reeds, the financing of the balance is likely to raise serious problems. l'he Economic Counsel Board, for instance, has estimated that minimum gross investment requirements (exclusive of inven- tories) over the next five years will probably be on the average 20% higher than in the fiscal year 15'52. According to its projections this would en- tail investments at the rate of about 20.5% of national income by the 1955 fiscal year as compared with 18.2% in 1952. Basically Japan will have to finance investment out of its oin resources. Foreign capital and the possible use of foreign exchange reserves can at best be expected to cover only a very small percentage of the total investment resources required. The possible volume of non- inflationary investment will be determined by t,he amount of real savings lxhich can be efLected through the government and in the private sector of the economy. The volume of savings or domestic investment resources will in turn be determined by the development of production and national income and the proportion of national income which will go into consumption. 0 It is unlikely that a balance can be struck between investment resources and requirements without some long-range planning and controls. This need has recently received some recognition in Japan. For example, the government has strengthened tlhe Supreme Economic Council which was originally established to advise the Prime Minister on economic problems. Its composition was broadened to include not only selected cabinet members but also outstanding experts from banking and industry; and it iwas given the task of screening investment requirements and considering the means of financing an investment program.51/ Ll/ The Council consists of the Ministers of Foreign Affairs, Finance and International Trade and Industry, the Secretary-General of the Cabinet, the Director General of the Economic Counsel Board, the Governor of the Bank of Japan and three business leaders. - 82 - Planning of this tyl?e need not involve the elaboration of a detailed, inflexible blueprint for the economy and the imposition of many direct con- trols, It would necessitate, however, some advance planning of the general composition and size of pulDlic investments and the setting of targets for private investment. Publie. investment outlays are quite substantial, and it is important that they be determined not simply by annual budget alloca- tions, influenced to a considerable extent by current political pressures, but by longer range economic considerations. This is particularly necessary for expenditures on agriculture, forestry and fisheries, roads, ports and railways and housing. Private investment, of course, is less susceptible to control, but its direction can be greatly influenced by credit and fiscal policies. Targets for private investment in various fields could be set with the idea of ensuring adequate funds for most essential investment and reducing outlays for less important activities. Through controls over bank credit and capital issues the government and the Bank of Japan can largely determine the total of private investment; and the direction of private investment can be extensively influenced through qualitative credit con- trols, differential interest rates, tax measures, including special depre- ciation allowsances, and the policies of government investment institutions. Any globoal investment program must, of course, be flexible. It would require periodic readjustment in the light of changing circumstances. Its size and composition must, above all, reflect changes in the resources available for its financing, It is important, however, that policies touching investment be framed not simply to meet the needs - political and economic - of the moment, but to attain the long-term goals which must be kept in mind. These goals are to make Japan more self-supporting and at the same time to cover minimum essential domestic consumption requirements. The primary task will be to ensure that the investment essential to the fulfillment of these goals is made without running the danger of infla- tion. If Japan is to sell an increasing volume of goods on the world market at competitive prices, inflation must be avoided at all costs. Japan will therefore have to finance its investment requirements out of 0 real domestic savings except for such small amounts as may be financed through the use of its foreign exchange reserves or investrmient of foreign capital. A program to achieve these ends will presumably have to include the following features: 1. Restraint on consumLption - As long as basic investment requirements have not been met, Japan will be unable to afford a significant rise in per capita consumption. This will mean that consumption outlays in the govern- ment budget will have to be kept to a minimum and that any substantial increases in wages will need to be deferred until there is a considerable improvement in the productivity of Japanese industry. In the postwar period Japanese labor has become well organized and has been pressing - 83 - vigorously for higher wage,s. Apparently, however, real wages in manu- facturing industry are already about 10% higher than in 1934/36. It is difficult, ho-wever, to persuade labor to exercise restraint unless at the same time attempts are made to restrict some of the conspicuous spending on luxuries by corporations and individuals. 2. Incentives to saving - It would be desirable to explore various means of stimulating an increase in savings, particularly by encouraging greater self-financing by industry. Private industry, particularly in essential fields, might be given special tax concessions on reinvested profits; and public corporations such as the Japan National Railw^ays and the Nippon Telegraph and Telephone Corporation might be given the means to finance more of their investment requirements by adjustments in rates and fares. 3. Maintenance of Government Revenues at a High Level - So long as voluntary individual and corporate savings are likely to be inadequate, it seems essential to keep government revenues at a high level and to channel a considerable portion of this income into essential investment. The government must mobilize sufficient funds not only to meet essential public investment requirements, including those for trarsport, agriculture, forestry and fisheries, bet also to permit it to direct capital through the Development Bank and Eimilar institutions into key industries. Wfhile changes in the tax structLre may well prove desirable, the overall tax burden in recent years does not seem excessive particularly in the light of the many high-priority claims on government resources for investment. 'iith a careful husbanding of resources, Japan should be able to meet essential investment requirements Twithout extensive resort to foreign borrowing or the use of foreign exchange reserves. In fact, the Economic Council Board has recently estimated that domestic resources likely to be available for investment over the next five years will fall short of re- quirements by about -$l20 million. This estimate was based on certain pro- jections of the national income and rests on the assumption that (1) invest- ment requirements will be carefully screened, and (2) the rise in per capita consumption will be confined to 1% per year. Although such a calculation illustrates the hypothesis that Japan can do much to meet its own require- ments, it can hardly justify a confident prediction that Japan will need to borrow abroad t120 milLion to cover the remflaining deficiency. The figure in question clearly falls well within the margin of error which affects the underlying projections of national income, consumption and savings. It is therefore impossible to predict exactly how much Japan might need to borrow abroad. The principal economic justification which Japan can advance its foreign borrowing rests, in fact, on the uncertainties which affect both the futire size of its foreign exchange reserves and the magnitude of the direct and indirect foreign exchange requirements resulting from the future volume of investment, The size of the foreign - 84 - exchange reserve will be determined to a large extent by the volume of U.S. dollar disbursements in Japan which cannot be accurately forecast; and the foreign exchange needs arising from future investments can hardly be pre- dicted with any degree of exactitude. Under t:hese circumstances foreign borrowing must be considered primarily as a means of providing Japan with an extra foreign exchange "cushion"? on the basis of which Japan could pro- ceed more confidently with plans to make the country more self-supporting. Any foreign loans contracted for this purpose can, in the last analysis, be repaid only if Japan continues to receive, albeit in declining volume, special dollar income, or if relaxation of political tensions or economic development in the Far B&stern area, accompanied by an easing of trade re- strictions permit Japanese access to lower cost raw materials and foodstuffs and to larger markets for her goods. For the near term it appears that special dollar income is likely to continue at; rather substantial levels and it is fair to note that past expenditures of this nature have reflected U.S. recognition of Japaw's significance as a vital element in the Pacific area, There is no reasoni to anticipate that this significance will diminish within any period for whLch it seems useful to attempt a forecast. . S.NMEX I INDICATOR FSV (in millions of yen) Government Life Deposits Deposits Fiscal year Bank Deposits Trust funds Postal Life Insu- Special and non- in Mutual in other Investment Total Index (a) & Investment (b) Savings rance and Insurance (e) life TLcan'and-- Financial in of Real Trust funds (c) Postal A nnuities insurance Savings Banks Institutions Securities Savings _ _ (d) _ _ (f) (g) (h) 1934-1936 847 163 184 156 - 256 15 118 631 2?368 100 (average) 1947 78,677 470 4;264 2;062 1,977 '319 3;877 6,983 150,055 113,684 75 1948 On-,09> 2.928 27,029 2,793 5,197 90594 10,863 60,983 82,703 389,182 106 1949 201,219 5,051 41,513 8,697? 9733 84122 859 29,185 42,t86 355,767 71 195C 201,540 6,815 32,648 18,396 13,129 15,182 23,237 30,772 i-3,14 32-6,57 52 1951 391,390 33,802 46,180 29,269 16,312 24,543 36,244 67,854 102,714 747,398 gO …--------------- --- --------------------- ----- ---- ---- --- ------ ----- _ __ _ --_ _--_ ___ ___-----_ _ _ rote : This table does not purport to provide n estimate of total savings, but only indicstors of the trend in savings. The total is given for presumed savings in various forms and this total is deflated by changes in the official price level to provide an indication of the trend of tfreal savings.10 The amount of "real savings" in the years 1947 to 1949 is undoubtedly exaggerated because the wholesale price level did not take into account the large volume of transactions at blackmarket orices. (a) Total deposits of all banks - (current deposits + government deposits and denosits from other financial institutions other than the Bank of Japan 4- loans on (b) Money held in trust (excluding National Savings Association} and Investment Trust Funds - (deposits from other financial instituiions a- loans on deposEvo5sit (c) Postal savings excluding postal transfer savings. (d) Operating assets. (e) Deposits in special insurance account of Trust Fund Bureau. (f) Deposits - (current deposits + government derosits +- denosits from other financial institutions). (g) Adjusted in similar manner as deposits of all banks. (h) Outstanding debentures of government and financial institutions + stock issues 4- receipt on debentures etc. - (securities held by government and financial institutions 4-loans on stocks and bonds). ANiM 2 U.S. AID COUNTERPART FUND (in millions of yen) ,Period Apr.1l, 1949-Dec.31. 1952 Assets Total Funds Capital as of and Utilization Collections Dec. 31, 1952 Fund Available - Total 561,801 - - 1. Receipts of capital 323,097 - - Transfers from US Aid Account 306,508 - - Income from investment 16,589 - - 2. Collections of capital 238,704 - - Long-term investment 37,110 - - Short-term investment 94,230 _ _ Cash drawn down 107,364 - - Fund Utilization - Total 561,8C1 238,704 - 1. Government enterprises 97,48:8 27,008 30,500 Railways 19,000 a/ 15,000 0 Communications 24,0CO b/ 12,000 0 Ptublic Works 10,988 c/ 8 0 Public Housing 10,000 i 0 0 Forests 3,0C00 o/ 0 0 Export-Import Bank 7,500 / 0 7,500 Development Bank 16,000 d/ 0 16,000 Agricultural Loan Special Account 7,000 d/ 0 7,000 2. Private enterprise 140,007 3,868 136,138 Electric power 63,093 420 62,673 Shipping 54,637 36 54,600 * Coal 6j,425 847 5,578 Iron and steel 2,208 276 1,933 Chemicals 865 48 817 Fertilizer 516 131 385 Agriculture, forestry & fisheries 1,015 220 795 SnaIl and medium business 4, 198 958 3,239 Banks 5,950 878 5,072 Textiles 700 50 650 Tourist hotels 80 0.6 79 Machinery imports 70 3 68 Subway 250 0 250 3. Special uses 9,854 308 7,106 Depenadents housing 7,409 303 7,106 }4ilk for school lunches 1,7'74 c/ 0 0 Reorientation program 671 c/ 5 0 4. Acquisition of governrent bonds 111,885 e/ 5,926 43,492 5. Short-term investment 94,725 94,230 495 9/ 6. Cash deposit in Bank of Japan 107,514 107,364 150 7. Operating expenses 32Z8 - - ANNX 3 ASSETS AMD LIABILITIES OF TRUST FU1D BUREAU (in millions of yen) End Fiscal Year : End 1948 1949 1950 1951 Feb. 1953 I. ASSETS Securities National government 70,741 77,439 87,387 99,224 93,524 Local government 923 522 405 610 552 Financial institutions 4,706 526 18,471 48,146 80,364 Other 909 907 712 993 1,442 Loans National government accounts 2,969 2,891 27,890 7,327 18,719 local public bodies 34,552 63,080 1C3,321 156,851 218,408 Other a/ 1,103 21,202 11,627 38,754 66S,591 Deposits with Bank of Japan 1,295 1,946 16,137 4,348 3,12g Financial institutions - 13,976 - - - II. LIABILITIES Postal savings and postal transfer savings 83,912 124,139 157,145 202,329 264,838 Insurance and pension funds 23,243 43,193 79,481 127,027 157,648 Surplus cash deposit of national Treasury - - - 5,000 5,000 Other funds or deposits 10,200 15,162 19,326 20,142 47,528 Reserve Fund and Excess Revenues - - - 1,755 7,716 III. TOTAL ASSETS OR LIABILITIES 117,202 182,494 255,950 356,253 482,730 a/ Pimarily government agencies. ANNE4 PRINCIPAL ACCOUNTS CF TBE DEVELOPMNT BANK Februay 2. 195 (in millions of pni) Paid-up capital 111,170 Borrowing from government 149,113 Loans On deeds 53,813 On deeds taken over 56,987 On bills talcen over 7,642 U.S. Aid Counterpart Fund loans taken over 144,914 Total loans 263,357 Securities National government bonds 4,767 local government bonds 5 Stocks anid shares 4,950 Total securities 9,723 Deposits with other financial institutions 1,497 AMEX 5 BALANC)1 OF INTERMATIONAL PAYMENTS Table 1 Balance of Payments for 1295 (in millions of dollars) Total Dollar Tran- Sterling Tran- Open-Account saections sactions Transactions Cr. Deb. Bal. Cr. Deb. Bal. Cr. Deb. Bal. Cr. Deb. Bal. Commercial Trade f.o.b. 829 886 -57 298 503 -205 301 212 - 89 230 171 f 59 Special Procure- ment goods 50 - i50 50 - *50 - - - - - - _ Gold a/ 4 4 4 - - - - - V Travel 22 2 f20 17 1 .16 3 1 .2 3 - f3 Transportation and Insurance 10 100 -90 6 58 -52 2 24 -22 2 19 -17 Investment Income - 6 -6 - 5 -5 - 1 -1 - - - Government Transac- tions (Including special procurement services, etc.) 104 - .104 102 - *102 2 - *2 - _ _ Niscellaneous 34 12 .22 23 9 .13 8 2 -6 3 1 .3 Private Donations 80 11 .69 61 3 t58 11 5 -.6 8 3 .5 GARIOA import Aid _360 - itL 360 - -t360 - - - 1493 1017 ,476 917 579 .338 327 244 t82 247 194 f53 Mgultilateral * Settlements .76 -34 -42 Errors and Omissions -5 i20 -25 Total 471 *L34 .23 1ll a/ Included in total but not allocated by currency breakdown. ANNEX 5 (cont'd.) Table 2 Balance of Payments for 1951 (in millions of dollars) Total Dollar Sterling Open Account - Transactions Transactions Transactions Cr. Deb. 'Bal. Cr. Deb. Bal. Cr. Deb. Bal. Cr. Deb. Bal. Commercial Trade (f.o.b.) 1355 1647 -292 317 976 -659 613 373 t239 425 297 *127 Special Procure- ment Goods 227 - *227 227 - .227 - - - - - - Gold a/ 4 - .4 Travel 9 4 +5 7 2 +4 1 2 -1 1 - *1 Transport 41 256--RI5 11 154 -142 18 71 -54 12 31 -19 * Insurance 4 16 -12 1 8 -7 2 5 -3 - 2 -2 Investment Income 1 6 -5 1 6 -5 - - - - - - Government Transactions Allied Forces 297 - .t297 291 - *291 6 - .6 - - - Special Procurement Services 99 - *99 99 +99 - - - - - - Other 1 2 -1 1 1 - - - - - - - Diiseellaneous 101 51 t50 88 44 +43 13 6 .7 1 1 - Private Donations 26 10 *16 22 10 t13 3 1 *2 1 - .1 GARIOA Import Aid 157_ 57J1 - 11577 - _5- _ _ ,- - Total 2322 1993 +329 1222 1201 *20 655 458 .197 440 333 *108 iMultilateral Settlements - .89 -25 -63 Errors end Omissions +8 *7 -37 *38 Total E337 .116 *135 .83 a/ Included in total but not allocated by currency areas. AYNEX 5 Table 3 Balance of Payments for First lialf 1952 (in millions of dollars) Total Dollar Sterling Open-Account Transactions Transactions Transactions Cro Deb. Bal. Cr. Deb. Bal, Cr. Deb. Bal. Cr. Deb. Ba] Commercial Trade (fob) 690 824 -.34 181 491 -310 340 221 +119 169 112 +57 Special Procurement Goods 139 - i.139 139 +139 - - - Gold a/ 2 - + 2 - - - - - Travel 5 3 4 2 b 2 3 - 1-1 - - - Transportation 36 102 - 67 16 63 - 47 18 21 - 3 3 19 -16 Insurance 2 6_- 4 5- 4 l-l - - - Investment income 2 2 - 1 2 1 - - Government transac- tions including spe- cial procurement services, etc. 280 3 .277 271 2 t269 8 - - 7 2 - .1 Miscellaneous 9 17 - 8 6 12 - 5 2 h- 2 1 1- Donations 32 10 + 22 26 7 +19 1 1 - 5 1 .3 Total 1197 967 -230 645 582 . 63 370 250 .120 179 135 .&5 Miultilateral Settlements - 21 - 2 -19 E & 0 +8 - 23 -1 * Total .238 * 70 +1l1 +25 a/ Included in total but not allocated by currency breakdown. POSTWAR FOREIGN INVESTMENT IN JAN Table 1 Canitalized Value QfTechnolozical-As1 stance Contracts (in thousands of dollars) 1952 2242 100 2-191O (JRn-SeRt) Total Manufacturing Industry Spinning - _ 10,138 1,729 11,867 Lumber & Wood Products - _ 517 _ 517 Paper & Pulp - 543 54 597 Printing & Publishing - - _ 77 77 Chemicals - 810 12,047 1,284 14,141 Petroleum - - 1,011 4,909 5,920 Rubber & Leather - 2,123 5,358 1,158 8,639 Stone Clay & Glass - - 247 115 362 Metals - - 6,686 4,710 11,396 Electric Instruments - 895 7,201 17,952 26,051 Transportation Equipment 270 2,007 5,992 857 9,126 Other Machinery 810 5,791 8,694 16,593 31,888 Construction - - 733 61 794 Electricity-Gas - 790 790 Recreation & Amusement - - 54 - 54 Total 1,080 11,626 59,224 50,289 122,219* *Of this amount $96,702,000 is attributable to contracts concluded with U.S. firms. ANTEX 6 LozLt. i.) Table 2 Acausition of Jna.m Se Sh-ares bv Fcrei.jners Mens of Acauisition_ Number Number Total Foreign Inv e2 t-(sent Japanese Year of cages of_jstockS_ Value Currency in 1 i,urrsenv ,54a9 95 31234.4.90 176,644,238 z 159,316,692 X 6,o00,000 X 11,327,566 1950 126 16,332,206 876,299,450 463,641,555 380,299,740 32,358,153 1951 384 51,139,968 4,603,121,350 2,757,403,900 1,788,923,800 56,793,650 1952 1,268 22,740,793 1,977,316,385 1,278,548,505 608,287,680 90,380,200 Jan-Sept. Total 1,873 93,447,457 T7,633,381,423 *4,658,910,652 Y2,783,611,220 T190,859,569 1_ 6 CgontId.) Tabl e 3 Ac2,uiaition of Japaneze Real Estate-bY-Forei_era _Means_Gcq4isition Number Land :Building Talue Forei.gn Investment Japanese Tear__ of cas.gj (T _ yen__ .C ,v in kin u 194'9 _8 93.596.1 4,733.6 279,134,250 18,139,110 153,960,000 107,035,146 1950 57 151,802.3 8,808.1 163,251,304 66,008,260 0 97,243,044 195X 194 575,087.6 45,441.1 4,213,809,771 292,406,904 49o,698,586 3,430,704,281 1952 Jan-Sept. 72 32,194.5 2,986.8 113,734,194 22,674,948 0 91,059,246 Total _381 8536805 _ 61,969.6 4,769,929,519 399,229,222 644,658,586 3,726,041,711 Ai'3lDu 7 Table 1 ?Tovisions a' ~o: CCx Ti'ntO at i of 2 (f'i,,:ttres in illi-)ns o. IC.o.Uars) L.'-Pznied Annuaa-evl o i . derea. Japalse'.^rt3 Jb,,,e Ie'tr Argentina _ _ 10 Brazil 33.5 35.6 noiAe Finlalnd 2.7 '.7 0.5 *Frrenh xio ion 25.0 4:L.0 3.0 !Test Goroav7 ;0. 3 .0 9.0 Iri ono.eia 55.0 40 .0 a/ NoethorlLans 7.3 7.3 2.0 philki)pkaes 50.0 50.0 2.5 10.45 17.3 4.0 Forr.osa 50.0 5).0 1 0 Thailand 56.0 56.0 2.0 I%orea 32.0 16.0 2.0 Italy 1 15.0 13.0 1.0 ~/ At tle concalnsion ac the nei ,ree. 'czt in 10it ^52 JapaS3 noet crodit balnnco .itlL InOonosia oeror $60 -A!Uon. Thoe eW cess over $60 rillion .!c;s tranafkrred to Vie tew account, $6 mdilioa }ias frozen for a -orioc, of >iv. aeirs, iCd $54 rlllion io to be -ecil in doll-ars in five alinnlA iikta1lr-ejAtI.. UnCxer Uac :ew af roe'c- t, J. ;c.neso net credit; bA'1a.ces u-. to $2'- :--llion c're to be settled mnainly by "switch" trade transactions (C`l5 million) and the remainder in cash dollars. Excesses beyond &20 million will be paid in a suitably agreed currency over a two year period. b/ Reported concluded mid-January 1953. ANNEX 7 (Cont'd.) Table 2 Japanese Balances under Open-Account Pa nt Agreements / (in thousands of dollars) 1950 1951 Jan-Sept. 1952 Argentine ,-,,025 /13,154 47,202 Brazil ,/1,133 / 3,900 -888 Finland -144 -665 /1,011 France /566 /5,631 /24,630 Germany /4,546 /7,062 -6,882 Korea /695 /5,576 /10,915 Netherlands /2,098 -g80 /3,106 Indonesia /15,233 /61,895 /31,770 Philippines -3,634 /1,637 -9,057 Thailand /20 /4,347 -7,034 Sweden /3,298 4,602 /7,167 Taiwan -2,127 /8,515 -2,436 a_ Excluding transactions conducted outside the open-accounts and usually settled in dollars. The most important of recent transactions outside the open-account has been the purchase of rice from Thailand with dollars. ANNEX 8 ESTIMATED ANNUAL SERVIC C RGES ON JA FAESE LTEBNAL BONDED IlDBBTEDNESS (in thousands of pound sterling or dollars) Payments on Sterling Bonds ___ Payments on Dollar Bondl Grand Total Principal Sinking Total Principal Sinking (Dollar Fiscal Year Matured Fund Interest In In dollar Matured Fund Interest Total equivalent) IterlinZ equivalent 1953 - L 1,024 ; 7,874 L 8,998 $25,195 $ - $3,470 $9,226 $12,696 $ 37,891 1954 - 1,089 7,884 8,973 25,125 1,457 2,592 8,900 12,949 38,074 1955 - 1,122 7,822 8,944 ?5c9044 - 2.594 8,672 11,266 36,310 1956 - 1,178 7,759 8,937 25,024 _ 2,453 8,515 10,968 35,992 1957 - 1,237 7,693 8,930 25,004 - 2,500 8,367 10,867 35,871 1958 3,467 1,302 7,535 12,304 34,452 - 2,573 8,217 10,790 45,242 1959 - 1,368 7.294 8,662 24,254 - 2,626 8,062 10,688 34,942 1960 - 1,438 7,137 8,575 24,010 - 2,683 7,906 10,589 34,599 1961 25,973 1,513 7,055 34,541 96,715 - 2,741 7,746 10,487 107,202 1962 - 1,578 3,718 5,296 14,829 6,165 2,333 5,278 13,776 28,605 1963 6,915 1,455 1,674 10,044 28.124 26,618 1,364 2,017 29,999 58,123 1964 500 1,532 1,301 3,333 9,333 - 1,435 721 2,156 11,489 1965 - 1,613 1,199 2,812 7,874 1,440 641 2,081 9,955 1966 - 1,699 1,106 2,805 7.854 1,024 556 1,580 9.434 1967 - 1,789 1,009 2,798 7,835 - 922 502 1, 424 9,259 1968 3,233 1,769 806 5,808 16,263 2,324 847 451 3,622 19,885 1969 1,204 932 572 2,708 7,583 - 893 277 1,170 8,753 1970 - 984 484 1,468 4,111 _ 942 228 1,170 5,281 1971 413 713 430 1,556 4,357 - 994 176 1,170 5,527 1972 - 752 368 1,120 3,136 - 1,049 121 1,170 4,306 1973 - 545 326 871 2,439 - 237 66 303 2,742 1974 - 5 296 301 843 - 237 50 287 1,130 1975 _ 5 296 301 843 - 250 37 287 1,130 (Cont'd.) _____gents on SterlingoBosnde P ts_qn_poXl __ Grand Total Principal Sinking Total Principal Sinking (Dollar li_scal_Year Matured Fund Interest In In dollar Matured Fund_ Interest Total equivalent) S terline equivalent 1976 L - ; 5 1L 295 ; 300 $ 840 $ - $ 264 $ 23 $ 287 $ 1,127 1977 - 5 295 300 840 - 151 9 160 1,000 1978 - 5 295 300 840 - - - - 840 1979 - 5 294 299 838 - - - - 838 1980 - 5 294 299 838 - - - - 838 1981 - 5 294 299 838 - - - - 838 1982 - 6 293 299 838 - _- - 838 1983 - 6 293 299 838 _ _ - - 838 1984 - 6 293 299 838 - - 838 1985 7,213 6 148 7,367 20,617 - - - - 20,617 1986 - 6 3 9 26 - - 26 1987 - 6 3 9 26 - - - - 26 1988 - 6 2 8 23 - - - - 23 1989 - 6 2 8 23 - _ _ - 23 1990 - 6 2 8 23 - - - 23 1991 i- 15 42 - - _ ~ECTRIC P0WER lDEVELOPM?V7T PROGP.Vi_ TABTE 1 Fund Requlrements_fo Eecric ower Expansion Progzam v (in millions of yen) l Increased Fund Requirements by Fincal Years capacity --- -------------------------- - -------------…--- ------- - …-------------------- … (1,000 KW) Total fund Expenditures already made in 1952 1953 1954 1955 1956 1957 and before 1951 INine Power Companies Works under construction 2,463 227,443.1 21,759.5 81,556.8 83,990.1 31,938.c 81198.7 Works to be started in and after 1953 968 342,650.0 0 0 16,488.0 66;520.0 89,331.0 89'202,0 81,109.0 91,047 0 16,997.C 17,050.0 17,000.0 17,000.0 13,000.4 10,000.0 Sub-total 3,431 66l,140.t 21,759.5 98,553.8 117?528.1 115,458.0 114t529.7 102,202.0 91,109.0 Local Governments Works under construction 191 21,329.0 2,971.0 5,679.C 8,500.0 3,179.0 1,000.0 - - Works to be started in and after 1953 153 16,936.0 - 53.0 2,508.C 5,294.0 4,451.0 3,337.0 1,301.0 Sub-total 344 38,265,0 2.971,0 5,732.0 11,000.0 8,473.0 5,451.0 3,337.0 1,301.0 Electric Power Resources Development Co. W orks under construction 742.6 66,936 - 6,700 i6,300 16,6o0 13,ol6 12,000 2,320 W orks to be started in and after 1953 542.9 57,070 - 300 8,700 16,100 17,800 11,470 2,700 Sub-total 1,285.5 124,006 - 7,000 25,000 32,700 30,816 23,470 5,020 Captive plants Works under construction 341 2b,147.C 4,083.0 14,128.0 6,133.C 803.0 - _ Works to be started in and after 1953 60 4,200.0 - 1,400.0 1,600.0 1,200.0 _ Sub-total 401 29,347.0 4,083.0 14,128.0 7,533.0 2,403.0 1,200,0 - - Grand total 5,461.5 852,758.1 28,813.5 125,413.8 161,061.1 159;034.0 151,996.7 129,009.0 97,430.0 *3,000.0 *5,000.0 *25,000.0 *40,Coo.r -_---------------------------------------------_--------------__---------____-_____,.-_--___.------ Remarks : 1. "Works under construction" includes works which ubre to be started in PY 1952. 2. Figures marked * represent the funds for projects which will be completed in and after 1958. .JAO=X 9 (cont'd) Table 3 -___ _ _ __ _o L _ _ _ __+__r ciral drinectricc R o ) Prof tlctr --------- ng ater ffetieFeatures of Dams and. Redervoirs ___ ame of Com- NTame of Estimated Maximumn Generating Water 1 Effective _ __S____ rs _ pany under- Power Plant Cost (in Power Power in Usable Head Type of Height of Cubic Volume Usable Usnble takirg project (Prefecture) millions in KW, 1000 KWh (cub.m/s) (m) Dam Dnm of Dam Pondage DeTpth -- - ). (1000 cub.m.)_ (1000 cub.m.' _ Power Source Sakuma 26,000 360,000 1,500,000 310.00 148.00 Concrete 150.00 1,620 260,000 50,00 Development Co. (Shizuoka) Gravity Mihoro 16,500 142,000 819,000 100.00 170.00 n 120.00 1,600 320,000 45.00 (Gifu) Okutadami (Fukushima) 21,171 300,000 570,000 300.00 150.00 If 150,00 1,510 558,000 75.00 Yunotani aI#l) 370,000 1,030,000 130.00 379.00 150.00 1,510 558,000 75.00 (Fukushima) #2) 38,154 120,000 379,000 124.00 121.00 33.00 29 500,000 2.00 #3) 110,000 375,000 126.00 109.00 n 17.00 7 100,000 2.00 Nukabira 1 3 others 16,320 157,300 495,213 Nukabira only - 52,400 120,493 50.00 137.00 81.00 542 310,400 40.00 (Hokkaido) K,yushu Electric Kamishiiba bl 10,797 90,000 254,218 73.00 145.50 Arch 110.00 315 760,000 45.00 Power Co. (Miyazaki) Chubu Electric Ikawa b/ ) 49,300 176,775 65.80 89.40 Concrete 92.80 554 235,000 15,00 Power Col O u 14,543 Gravity Okuizumb 0/ ) 87,000 527,480 60.00 169.30 n 43.00 41 600,000 3.00 (Shizuoka) Tokyo Electric Sudagai 3,323 30,000 143,016 50.00 72.00 79.00 240 19,400 25.00 Power Co. Yagisawa 6,806 32,000 68.120 45.00 87.25 97.00 574 80,000 35.00 (Gu_ma) _ I | |. _ _ _ _ _ a/ Suggested alternative to Okutadami project. b/ In progress. AiNh',X9 (Cont d) Table 2 Proj9eted. Increase in Installed Genereting Cprpcity to be Tut into Oneration Annually (in Kilowatts) Total of In- Number of creased --po..cts_ , CiA.Lmcitz 1952 19Ci3 1954 199i 19S6 1957 Xydro Power Plants Nine Power Companies 114 2,177,610 161,260 543,600 685,200 322,550 234,200 230,800 Local Governments 28 344,390 60,820 39,030 26,120 155,120 38,300 25,000 Electric Power Resources Dev. Co. 17 1,285,500 0 37,200 0 310,700 550,300 387,300 Sub Total 159 3,PO?7500 222,080 619,830 711,320 7R9,370 822,800 643,100 Captive Plants 23 173,790 37,790 136,000 - - - - Total 182 3,981,290 259,870 755,830 711,320 788,370 822,800 643,100 Thermal Power Plants Nine Power Companies 30 1,252,870 110,500 379,750 221,(,00 371,620 104,000 66,ooo Captive Plants 38 227,600 119,600 68,ooo 20,000 20,000 - Total 68 1,480,470 230,100 447,750 241,000 391,620 104,000 66,ooo Total Total of Public Utilities 189 5,060,370 332,580 999,580 932,320 1,159,990 926,800 709,100 Captive Plants 61 401,390 157,390 204,000 20,000 20,000 -- Grand Total 250 5,461,760 489,970 1,203,580 952,320 1,179,990 926,800 709,100