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Economic and Financial Conditions. Prior to 1914 Japan had already almost recovered from the effects of the Russo-Japanese War, and her economic activities had yearly been making steady and more or less symmetrical progress. The World War, however, caused and even compelled the Island Empire to undertake a prodigious development of her commercial and industrial life.

During the early days of the war the disturbance in interna- tional commercial relations affected the Japanese nation in com- mon with the other peoples of the world. She was immediately conscious of the disquieting falling-off in the demand for silk, the most important of her exports. This situation, however, began to be perceptibly modified later, when a huge demand arose on the part of Russia and other Allied Powers for the supply of immense quantities of munitions of war, and, in addition, the inability of the European belligerents to continue their overseas commerce on the pre-war scale caused a demand for Japanese products in the markets of India, the South Seas, Australia, S. America and even Africa. The wave of prosperity which the satisfaction of these demands created was increased by the great volume of the carrying trade which fell to Japan's share, owing to the number of Allied merchantmen which had been directed to warlike pur- poses. All these factors, in addition to the natural decline in imports from the countries of the European belligerents, conduced to turn the balance of Japanese trade in her favour practically for the first time in 20 years.

A great increase in the amount of specie held by Japan abroad inevitably resulted, and the gold accumulated at home also tended to grow rapidly. The lowering of the rate of interest followed; prices of shares began to soar the shares of the steamship companies advanced by 400% in 1915 and the enthronement of the Emperor in the autumn of that year strewed with roses the already bright path leading to improved industrial activities. A considerable number of new undertak- ings, notably in the field of shipbuilding, iron and steel manu- facture and the chemical industry, were brought into being. Once more the rate of interest showed an upward tendency, and the issue of bank-notes increased rapidly. The trend of circumstances described above became more and more accen- tuated as time went on, until at the end of 1916 the prema- ture peace-talk counselled temporary caution to Japanese manu- facturers and merchants. ;

The momentous events of 1917, such as the general Allied trade embargo, the introduction by the Germans of ruthless sub- marine warfare, the declaration by the United States of war upon Germany and the debdcle of the Russian Revolution, all had their repercussion upon Japanese commerce. The continuous internal troubles in China further added to the general interna- tional confusion. Nevertheless, in spite of the far-reaching effects of these great outside influences, Japan's trade and industry con- tinued on the whole to register a steady development. The tightened restrictions on commerce on the part of Great Britain and the United States, especially the ban placed at one period by the latter on the export of iron and steel, caused a proportionate measure of agitation in the circles of industrial enterprise in Japan. Her shipbuilding and steel industries, however, were re- lieved from anxiety, and even stimulated into further develop- ment, by an arrangement which was speedily arrived at between the United States and Japan as to the exchange of ships and steel.

With the conclusion of the Armistice in Nov. 1918 the demand for warlike materials came to an abrupt end; and the branches of industry and commerce dealing with iron, steel, copper, dye- stuffs and chemicals, which had owed their inauguration or de- velopment to the abnormal situation caused by the war, received a sudden and serious blow. The demand for bottoms slackened down as a natural consequence, and the shipbuilders, who had been enjoying a period of tremendous and unprecedented pros- perity, were forced to arrest their activities. There were even threatening signs of economic depression. But the revived de- mand for food-stuffs, .and industrial materials necessary for the economic reconstruction of Europe, coupled with the roaring trade activities in the United States, still sustained the flourish- ing state of Japan's commerce.

For the rest, a financial panic which occurred in April 1920, due to over-speculation and misuse of credit, administered a telling blow to trade and industry. Nevertheless, Japan had amassed great wealth, her industry had advanced marvellously, not only in quantity but in variety; her merchants had acquired wide knowledge and a seasoned experience; her ships now cruised to the remotest corner of the seven seas; and many a country had been newly added to the list of her foreign customers. The foun- dation of industrial Japan had become incomparably stronger than in pre-war days and the brightest vista opened up before her future economic development.

The State Budget. The general budget of Japan, which was doubled both in revenue and expenditure during the Russo-Japanese War, was more than redoubled in the course of 1910-20. The total revenue and expenditure, which amounted in the fiscal year 1910-11 to 672,874,000 yen (68,600,000) and 569,154,000 yen (57,900,000) respectively, balanced at 1,563, 000,000 yen (160,000,000) in 1921-2. Table 3 shows the increasing figures of the Japanese State budget for the decade 1910-20.

Although in the early months of the war the more or less disturbed economic conditions in Japan checked the natural increase of revenue in general the customs duties in particular yielded a con- siderably diminished income owing to the marked decline in foreign trade the gradual recovery, followed by the unprecedented pros- perity of industry and commerce, caused the revenue to show an upward tendency. Since 1916-7 the income-tax, especially the amount contributed by commercial and industrial corporations, had begun rapidly to ascend in amount. Receipts from public under- takings and State property, especially the income of the steel foun- dries and the proceeds of munition sales to Allied belligerents, con- tributed enormously to the general growth of the revenue, although it should be noted that the manufacture of arms necessitated the dis- bursement of a sum practically equal to the income.

A noteworthy step was taken in 1918 in the creation of the profits tax, which required the profiteers, including ship narikin, to pay not less than 20% either of their income in excess of their average profits in pre-war days, or, in case such could not be ascer- tained, of 10% of their invested capital. This item yielded nearly 82 million yen (8,300,000) in 1918^9 and 93 million yen (9,400,000) in the following fiscal year, but with the end of the war the revenue dropped to 7 million yen (700,000).

As the war progressed it became more and more imperative that Japan should put forth her best efforts to render to her Allies military and economic industrial support. The trade boom and the enhance- ment at home of the national power also led to expansive industrial and educational measures. It became, moreover, evident that the salaries and wages of Government officials should be raised to meet the increased cost of living. It was only natural that State expendi- ture should expand in juxtaposition with the growth of the revenue. With the completion of the national defence programme spread ove seven years, there were to be further enormous outlays.

Table 3. Budget Figures 1910-21 (in 1,000 yen)

Year

Revenue

Expenditure

Surplus Revenue

Ordinary

Extraordinary

Total

Ordinary

Extraordinary

Total

1910-1

49l,33i-3

181,542-4

672,873-7

412,009-1

l57,i44-8

569,l54-o

103,719-7

1911-2

508,558-6

l4 8 ,633-5

657.192-2

409,889-0

l75,485-5

585,374-6

71,817-6

1912-3

552-085-5

i35,3o6-8

687,392-4

416,895-0

176,701-3

593,596-4

93,796-0

J9I3-4

575,428-0

146,547-4

721,975-4

4l5,635-8

I57,998-I

573,633-9

i48,34i-5

I9I4-5

536,342-5

198,305-5

734,648-0

399,225-4

249,195-0

648,420-4

86,227-6

1915-6

538,999-6

169,616-2

708,615-8

386,516-4

l96,753-3

583,269-8

125,346-0

1916-7

622,052-1

191,256-5

813,308-6

386,065-9

204,729-3

590,795-3

222,513-2

1917-8

763,760-1

321,198-2

1,084,958-3

437,821-4

297,202-7

735,024-2

349,934'!

1918-9

911,579-4

567,536-4

l,479,"5-8

490,167-1

526,868-4

1,017,035-5

462,080-2

1919-20

839,140-9

225,049-3

1,064,190-3

505,936-6

558,253-6

1,064,190-3

1920-1

1,012,614-1

322,741-1

1,335,355-3

724,790-8

610,564-4

1.335,355-3

1921-2

1,237,219-2

325,323-5

1,562.542-7

902,940-8

659,601-9

1.562,542-7