Japan's Economy: Postwar Boom & Prosperity

Instructor: Christopher Sailus

Chris has an M.A. in history and taught university and high school history.

In this lesson we explore the post-WWII economic boom in Japan, the circumstances and actions that led to it, and the subsequent crash in the 1990s and the Lost Decade.

Japan's Postwar Economy

The phoenix was a mythical bird capable of living for hundreds of years. According to myth, it could regenerate itself by throwing itself into fire, from where it would emerge with newfound youth; new life born from the fire. For years the phoenix has been used to draw analogies to characters and countries in history and literature, and arguably none are more fitting than Japan and its post-WWII economic boom.

In this lesson we will discuss the development of Japan's economy from WWII until the end of the 20th century.


Considering the devastation caused by WWII in Japan, it's a minor miracle Japan had any economy to speak of whatsoever. According to estimates, Japan lost over 25% of its national wealth and somewhere between 1.8 and 2.8 million people - that's between 4-15% of Japan's total population, depending on which estimate you use. These losses, both in men and material, were enormous. Added to this, of course, was the psychological devastation that came with having two atomic bombs dropped on the Japanese cities of Hiroshima and Nagasaki in 1945, which killed somewhere between 150,000 and 250,000, mostly civilians.

All this is to say: Japan was in a bad way after WWII. However, Japan's rebuilding benefited from two circumstances in the years immediately following the war. After Japan's surrender, the United States took a keen interest in the island nation it had recently defeated. As the U.S. entered the Cold War era, it began advocating capitalism and free trade in opposition to the spread of Soviet communism. It encouraged Japan to begin trading with the U.S. immediately through exports, while allowing Japan's rebuilding economy to remain relatively closed to foreign imports.

In addition, Japan already possessed much of the infrastructure necessary for a large commercial economy. Japan had massively ramped up its industrial output during the war; afterwards, it simply changed the production of war implements to the production of commercial goods. Some of Japan's most recognizable companies like Hitachi, Toshiba, Toyota, and Nissan all began or emerged as major companies in this era.

While these circumstances were fortuitous, Japan's economic rebuild still needed some decisive action. This came in the form of massive government aid to stimulate economic growth and industrial output. The Ministry of International Trade and Industry (MITI) was established by the Japanese government in 1949 to manage the Japanese economy and encourage industrial growth. In 1951, it established the Development Bank of Japan to provide capital at low costs to Japanese industries looking to expand and grow.

The results were impressive. In just two decades after the devastation wrought upon the country by WWII, the Japanese economy had largely caught up with its North American and European competitors. The 1960s saw the country use this newfound wealth to initiate massive infrastructure projects and gradually liberalize its trade relationsihps with the rest of the world by allowing more foreign imports. To this extent, they joined several international economic organizations in the decade, including the Global Agreement on Tariffs and Trades (GATT, the forerunner to today's World Trade Organization), the International Monetary Fund, and the Organization for Economic Cooperation and Development.

Transition and the Lost Decade

With this expanded economy came an expanded middle-class and a far more wealthy country. Life spans lengthened, the middle class expanded, and the average Japanese citizen experienced a wealthier and more leisurely existence than they ever had previously. The rapid expansion did have its negatives, including economic degradation, pollution, and the rapid depopulation of the Japanese countryside as large segments of the population moved to urban economic centers.

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