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The “Japanese Miracle” refers to Japan’s phenomenal economic recovery following the devastation of World War II. Within a few short decades of its capitulation, Japan had joined the community of prosperous nations. In economic terms, the nation’s recovery was miraculous indeed.  

One common question is: how much of the miracle can be attributed to the American Occupation following the war? The answer is somewhat complex. The Occupation did establish the fundamental conditions of constitutional democracy and stability upon which the Japanese could build a successful peacetime economy. In addition, Occupation authorities made sure that Japan’s postwar constitution included a “peace clause” which prohibited the nation from developing the means to wage war in the future. The U.S. military subsequently provided a security umbrella for Japan that exists to this day. With the country protected by the U.S. military, Japan’s constitutional disarmament precluded a significant postwar defense budget. This freed up additional funds to use on more productive investments. 

There is, however, another side of the story. When General MacArthur landed in Japan in 1945, his instructions from Washington were to focus on disarmament, not economic development. In fact, his orders specifically stated that the U.S. had no responsibility for the rehabilitation of the Japanese economy. Both America and Australia provided some food shipments to prevent starvation in the early years, but the economy itself was to be “a Japanese problem.” 

Japan’s productive GNP received a boost of about five percent a year because of the country’s low defense budget. (Japan has contributed some funds for the U.S. presence, and the country also maintains a small Self Defense Force.) But many poor countries received the benefit of U.S. military protection during the Cold War years, and did not become economic miracles. The bulk of the credit for the Japanese Miracle therefore goes to the Japanese themselves. 

Starting from Postwar Poverty 

In 1946, Japan’s industrial output was about 30% of 1935 levels. The Occupation authorities (and the rest of the world) expected Japan to focus on light manufacturing: toys, simple electronic components, clothing, etc. But Japanese economic planners set their sights higher, choosing to focus instead on heavy industry. Japan’s economic future would be found in steel, automobiles and chemicals—not toys and sandals.  

The postwar economy received an early jumpstart. In 1950, war broke out on the Korean peninsula, and Japan’s economy benefited from U.S. military contracts for a wide range of supplies. Japan also became the preferred destination for “rest and recreation” among American troops stationed in Korea, bringing in still more dollars. By the end of the war, the Japanese economy had gotten over an initial “hump.” In 1953, the U.S. was able to stop all direct aid to Japan.  

The next year, 1954, saw average incomes return to prewar levels. Japanese business leaders and bureaucrats now focused on developing the country’s heavy industries. They made rapid progress throughout the 1950s. Living standards at the end of the decade were 25% higher than they were in the middle of the decade. In 1958, a Japanese government study concluded that the nation had “completely recovered” from the war. 

The High-Growth Years and the Ikeda Plan

In 1960, Prime Minister Ikeda Hayato unveiled the “Ikeda Plan.” The Ikeda Plan outlined the ambitious goal of doubling the nation’s income in ten years. It detailed a series of concrete steps to achieve this end: investment in education and infrastructure, a focus on exports, and the nurturing of key heavy industries. Economists outside Japan praised the details of the Ikeda Plan, but claimed that no nation could double its income in just ten years. However, the target of the Ikeda Plan was reached in only seven years.  

The 1960s were a decade of high growth, and the benefits were more evenly distributed than in the past. Whereas only the cities had prospered during the 1950s, now the rural regions were benefiting as well. Farm incomes jumped as the population and disposable incomes increased. Farmers not only benefited from a richer domestic market, but they also received substantial agricultural subsidies from the government.  

Japan was rapidly moving from a primarily agricultural nation to a mostly industrial one. In 1950, half of the population was engaged in agriculture. By the mid-1980s, the number would shrink to ten percent. The economic growth of the 1960s lured many rural Japanese to abandon the farm for a more lucrative job in the city. 

1964 was a year of two major milestones. Japan was welcomed into the community of “prosperous” nations as the nation was invited to join the Organization for Economic Co-Operation and Development. Japan also hosted the 1964 Olympics. In a gesture of intentional symbolism, leaders gave nineteen-year-old Sakai Yoshinori the honor of lighting the Olympic flame at the opening of the Tokyo games. Sakai had been born in Hiroshima on the day the atom bomb was dropped.  

The period from 1966 to 1970 was marked by continuous double-digit growth in economic output and wages. Japan became a major exporter of transistor radios, televisions, cars, and consumer electronics. Japan’s industrial output was now greater than that of the rest of Asia combined. 

High Growth Gives Way to Slowdowns 

The early seventies were the calm before the storm, as the Japanese economy hit the skids during two energy crises later in the decade. There were also difficulties ahead that would be triggered by currency revaluations. Nevertheless, Japan was now one of the world’s major economic players. No nation had ever come so far in the short span of thirty-five years.