Japanese and U.S. economies in the first half of the sixties?

[MWThomas]

How were the two nations economies between 1960 and 1964? Did Japan rely on the United States for economic growth during that period? Did the decline of the United States economy in the seventies affect Japan?

[lonesoullost3]

Hey there (yay my first post!). First, I apologize for the long-windedness of this :sorry: ...I am majoring in economics and asian studies and it's fun to be able to utilize what I've learned. I think I've surpassed what you were hoping to get out of an answer - hopefully I didn't go off on too many tangents and miss your question entirely. Enjoy (and hopefully don't fall asleep while reading it... :D )
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Japan's economy was going through a magnificent boom in the early 60s called the Iwato Boom. It peaked in 1961 but ended shortly thereafter. This was partly sparked by the Vietnam War. The War led to a new wave of American investment in Japanese industry to supply the troops in Southeast Asia. Also, because of America's entrance into southeast asia, a whole new market opened up. (If you walk the streets of thailand and vietnam now-a-days, a huge majority of all motor scooters/vehicles are Japanese made). However, by 1962, Japan was reaching a foreign currency crisis.

At the peak of the Iwato Boom there was a need for industrial raw materials and technology imports. This meant a major outflow of foreign currency, reducing the availble amounts on hand by nearly 20% in a matter of 5 months (April-Sep 1962). Therefore, the balance of payments (BOP - the balance of trade from one foreign country to another; essentially exports - imports; postive is good) dipped drastically below an equlibrium level (BOP=0) and reduced the demand for imports because there was not enough foreign currency on hand. But from 1963-64 there was a smaller, pre-Olympic boom where the construction industry surged and once again, imports were in need and the balance of payments again dipped lower (further negative).

Furthermore, in 1963 and '64, Pres. Kennedy initiated the "Defense of the Dollar" plan which essentially placed taxes on exports of capitals and set prices of American goods and services so they would not weaken with the dollar. Again, you can see the BOP problem arise: more expensive to buy foreign goods, therefore you need more foreign currency, therefore you decrease your BOP further.

From 1960 to 1970, Japan had drastically increased it's production of industrial and non-industrial goods. Here's a table of Japan's percent of world production in some major resources and products of 1960 and '70.

1960 1970
Steel (raw) 6.4% 15.7%
Zinc 5.5% 13.7%
Ships 20.7% 48.3%
Passenger Cars 1.3% 14.2%
Industrial Vehicles 1.6% 30.4%
Radios 30.1% 40.3%
Televisions 21.5% 30.4%
Synthetic fibers 16.9% 21.0%

Of all of the above, Japan was in the top 3 producers of the world. For ships, Industrial vehicles, radios, and televisions, Japan was the largest producer in the world. So even though there was a brief recession in 1964-65 (post-Olympics), it was hardly enough to slow down the economy to any real degree.

From 1966-68, Japan surpassed England, West Germany, and France in terms of GNP (gross national product). That placed Japan as 2nd strongest economic country in the world (after the USA).

As for the realtionship between Japan and America in the early 70s...well that can be summed up in three words: MAJOR trade friction. In 1967, America reported it's first ever trade deficit (BOP was negative; value of imports greater than exports). American textile and television firms accused Japan of dumping on American shores. Dumping here refers to the action of selling products abroad at a much lower price, usually a price that is normally a loss, while selling products domestically for a higher price (which makes up for this "loss" abroad). By doing this, Japanese companies gained a sizable marketshare in America and was hurting the domestic economy of america in the industries of television and textiles (predominantly).

PM Satō and Pres. Nixon initiated talks in 1969 about a voluntary reduction in imports from Japan, which Satō agreed too. However, nothing happend until 1972. (At the same time, Nixon and Satō discussed the retun of Okinawa back to Japan - which occured in 1972. A link to the reduced imports?).

By 1970, America's before-mentioned trade deficit increases by four times! At this point, the Nixon administration stopped waiting for Japan to reduce it's imports. In July 1971, Nixon initiated talks with the People's Republic of China to improve relations (both political and economic) between the two countries. This was perfectly fine with Japan - China meant a brand new market to export it's goods. However, the fact that Nixon did not warn PM Satō irritated Japan and political as well as economic friction between the two countries developed. As a result, the right wing of the LDP became less enthusiastic to support America.

August 15th, 1972, the 2nd Nixon Shock occurred. At this point, the Nixon administration was tempted to do anything to save the dollar. So it pulled the dollar off of the gold standard and abandonded the Bretton Woods system (the dollar was the only currency able to be converted directly to gold, other currencies floated around the dollar). Now, the dollar was also floating in the economy as well and could fluctuate just as easily as other currencies. This meant a massive reduction in the strength of the dollar which made America's exports much more appealing to foreign countries (which would allow the BOP to balance out). Also, America placed a 10% surcharge on imports which made Japanese goods much more expensive to American buyers (Japanese goods already looked more expensive with the weakend dollar).

The Yom Kippur War of 1974 caused the first oil crisis for Japan. OPEC declared a rise in the price of oil because the western nations did not stop supporting Israel. This caused the price per barrel of oil to go up from $2 to $35 - an increase of 1750%!!! In the first time in the post-war period, Japan's GNP fell by 1.4%. Many economicsts and policy-makers in Japan had warned that Japan was not self-sufficient enough, and this 1st Oil Crisis proved that. By the time the 2nd one came in 1978, Japan had reduced energy consumption by more than 20% and there was hardly a dip in the economy as the rest of the world reeled from the impact.

Statistical source: Tatsurō Uchino "Japan's Postwar Economy"

::exhales:: Phew!! :relief: Sorry that was so long! I hope it helped though...I should work on making these types of things shorter for next time :p