Japan's Economic Outlook-Mid 1954
1. In July 1954,the Japanese Government published an 'Economic
Report for the 1954 Fiscal Year', generally referred to as the
annual 'economic white paper'. The most complete English digest of
this publication (which is some 160,000 words long in the
original) has already been forwarded to the Department (Memo. No.

829 of 15th July 1954) but the situation disclosed by this report
and by other available information merits more than passing
attention, Although, according to the official press summary of
the white paper, 'Japan's economy at the present time is at the
stage of consolidation after a period of too accelerated, uneven
expansion during the past year, the situation of the Japanese
economy can only be described as extremely precarious, and many
businessmen fear that the next twelve months will be characterised
by serious deterioration rather than consolidation.

[matter omitted]

10. The fundamental problem of the Japanese economy, in the long
run, is to produce enough, both directly for domestic consumption
and indirectly through trade with other countries, to support its
already excessive and rapidly expanding population. Dependent as
Japan is on imports for a substantial part of her foodstuffs and
for many of her raw materials such as iron ore, raw cotton and
wool, she is forced even more than Great Britain to trade in order
to live. Although there are ambitious plans to increase food
production, their successful implementation will serve only to
offset the growth of demand following the further increases in
population that are expected. The imported raw materials are
essential not only for the production of consumers' goods for the
Japanese market but also for much of the export production that is
needed to earn foreign exchange to pay for imported food and raw
materials.

11. There is, therefore, a chronic Japanese trade problem, and the
maintenance of equilibrium in the balance of payments is a
continuing preoccupation. The special economic uncertainty of the
present time arises directly from the development in recent years
of a pattern of trade that cannot be sustained from Japan's own
resources-a level of imports that is substantially beyond her
capacity to earn foreign exchange by her export trade, and can
only be financed by extraordinary measures such as US procurement
and foreign loans or grants. As US procurement declines (according
to the American Embassy it is not likely to exceed 550 to 600
million dollars in the current fiscal year as compared with about
$760 million last year) the resulting deficit can only be covered
by various forms of external financial assistance or by the
running down of Japan's currency reserves, until such time as
imports and exports are readjusted to new levels.

[matter omitted]

15. According to the recent economic white paper the root of
Japan's trade difficulties ties not in inadequate production or
even in 'the stagnant export situation', but in the growth of
imports. This is attributed to:

1. The importation of $200 million more foodstuffs than originally
planned because of poor domestic crops in 1953. (The prospects for
1954 rice crops is again bad.)
2. The reaction resulting from the relatively small amount
imported in 1952.

3. Higher commodity prices in Japan compared with the world level,
which brought profits to traders importing goods.

4. The rise in domestic consumption power.

The last-mentioned, as measured by estimates of total consumption
expenditure, increased by 13% from 1952 to 1953. Individual
incomes were up by 20% and savings by only 10%, and the increase
in expenditures was disproportionately concentrated on imported
goods.

[matter omitted]

19. There are so many examples of countries that have managed to
carry on somehow, despite extraordinary economic difficulties and,
by a series of expedients, have staved off an apparently
inevitable disaster, that it would be rash at this stage to
predict a major economic crisis for Japan. Nevertheless,
calculations regarding Japan's political and economic future
should not ignore the distinct possibility that the present
difficulties may get so far out of hand that the country will be
faced by a serious depression within the coming twelve months. It
is not necessary to stress the dangers that this would entail for
Japan's fragile democracy and the opportunities that it would
create for extremists of both the left and the right. In such
circumstances economics and politics become so closely involved
that the United States, in its desire to stabilise the political
situation in the Far East, might feel obliged to provide
assistance on a scale sufficient to prevent any economic breakdown
in Japan. This would probably be accompanied by renewed American
pressure on Australia and other sterling countries to share more
of the 'burden', by taking more Japanese goods, as a relatively
small price for keeping Japan outside the communist sphere of
influence.