Japan’s economic story is a rollercoaster of triumph and cautionary tales. From the ashes of World War II to global dominance in the 1980s, and then a prolonged stagnation, Japan’s trajectory offers valuable lessons for nations and policymakers. By diving into its rise, fall, and potential paths forward, we can uncover insights about resilience, adaptability, and the perils of complacency.

The post-war miracle: rebuilding from ruins

After World War II, Japan was a shattered nation. By 1946, industrial output had plummeted to 27.6 percent of pre-war levels, and nearly 40 percent of its infrastructure was destroyed. Famine loomed, but US food aid in 1946 prevented widespread starvation.

Between 1945 and 1952, the US injected roughly dollar 2.2 billion (adjusted for inflation) in aid, distinct from Europe’s Marshall Plan, to stabilize Japan’s economy. This lifeline rebuilt key sectors like steel and textiles.

Under the US-led Supreme Command for Allied Powers (SCAP), Japan accessed cutting-edge technologies from the US and beyond. The Ministry of International Trade and Industry (MITI) played a pivotal role, securing low-cost technology imports that modernized industries. This foundation propelled Japan toward dominance in electronics, automotive, and robotics. Lesson: External support and strategic institutions can kick-start recovery, but leveraging global knowledge is key to sustained growth.

Export-led growth: riding the global wave

The Korean War (1950–1953) was a turning point. US military procurement, peaking at 7 percent of Japan’s GNP in 1953, fuelled industries like steel and automotive. Toyota, for instance, scaled up through military contracts. By 1960, industrial output soared to 350 percent of pre-war levels. From 1957 to 1973, Japan’s GNP grew at a staggering 10 percent annually, with GDP rising from dollar 91 billion in 1965 to dollar 1.1 trillion by 1980 (in nominal terms).

Japan became an export juggernaut, flooding US markets with cars, electronics, and machinery. Even the 1973 and 1979 oil shocks couldn’t derail it. MITI’s subsidies bolstered high-tech sectors, with firms like NEC and Toshiba leading in semiconductors. Growth slowed to 5 percent annually in the 1970s, still outpacing the US.

Lesson: Aligning industrial policy with global demand can drive explosive growth, but resilience requires adapting to external shocks.

The bubble and bust: when euphoria backfires

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