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The present crisis in tho Japaneso balance of payments dates from the beginning of 1961 when it was clear that the gap on trado account was widening. This became a cortainty when the gold and foroign exchange reserves began to fall in May as many in Japan had forecast.
What trends have given rise to this crisis? the first is that of imports aa have boen soaring all through 1961 through . number of causes, One is the nvestment boom which has been going ahead harder than ever now that exporters have the prosepet of import liboralisation by next October. It is important to be as competitive as possible by then. aAnothor cause is the doubling of the national income plan in ten years. hon the targets of this plan were published in the spring each industry hastoned its preparation not only to produce its shire of the 1970 target but a larger share.
Tho second main factor for the crisis is the stagnation of evports, mainly due to the U.S. recession which is now onding. Tho U.S. takes about one: third of total Japanese exports. The problem thus facing Japan is to increase the export of light industrial products to Western industrialised countries and exports of heavy industrial goods to under-developed countries.
At the moment the former suffer from discrimination under article 35 of G.A.T.T. (General Agreement on Trade and Tar iffs) on the part of most Western countries which explain the determination of the Japanese Government to liberalise or free from import quotas , 90 per cent of her import trade by October Ist. The Japanese Government knows that no complaint about article 35 will te listened to until this has been done. Many industrialists are undoubtably nervous about the effects of this move.
As for the oxport of heavy industrial goods, such as electrisa.. goncerating sets to under-develpped countries, Japan on the whole has higher custs in those sectors of industry thanWestern countries. She does, however, mostly have lower transport coststo markets like India and tho countries of South-Hast Asia.
The other difficulty is that these countries are short of capital to pay for these products and when they receive loans they are oftentied. Thus tho best hope in the immediate future, and Japan knows this, is to export light vroducts to the West. What measures has the Japanese Government taken up to the present to doal with the crisis? All measures have been taken through the medium of credit restriction and not by increased import quotas, The country's difficulties were clearly due to the intornal boom, In July the commercial banks were asked to mals a 10 per cont cut in thoir loans extended to customers for the purpose oF eapital investment,
The bank rate was raised in the same month and again in Septomber. Dut the chief means of control is through the loans extended by the Bank of Japan to the commercial Ranks, Since the commercial banks are already extended to their limit they can only make further loans if they aro matched by yen for yer j.oans from the Bank of Japan. The lattor will novor, in fact, refuse a 20an bat it may charge one of the penalty rates which may be as high as nine per cont.
Basically the crisis is caused by the contradiction betwavn the rapidly growing industrial power and the almost stagnant purchasing powor of the Japanos? puople, hence then excossive dependence on exports (Selwyn Lloyd please note!}!) the upshot being the instability of the Japanese xconcmy and tc quote the economic document adopted at the Sixth World Congress of the Fourth Internationals "..,.the inevitable awakening of the most exploited masses, together with greater economic instability, will end by creating in Japan a situation that is the most explosive of all the capitalist countries."