MITI and the Japanese miracle

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subsidized these transactions by maintaining an exchange rate between the dollar and the yen of US$1 = ¥130 for imports and US$1 = ¥330 (or ¥500, depending on the product) for exports.

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Imports were sold in Japan at prices fixed in accordance with the ESB's supply-and-demand plans.

During the autumn of 1948 both SCAP and the Japanese recognized that they had to make some fundamental changes in the priority production system and in the state trading operations of the BOT. On October 15, 1948, the Ashida cabinet resignedthe prime minister himself had been arrested in the Showa* Denko* scandal over the misuse of RFB fundsand Yoshida returned to power. SCAP was now determined to stop the so-called RFB inflation, for two reasons in particular. First, beginning in July 1948, in order to increase Japanese imports and thereby try to rehabilitate the economy, SCAP had started to draw on two new accounts of U.S.-appropriated aid fundsthe so-called GARIOA and EROA ("Government Appropriations for Relief in Occupied Areas" and "Economic Rehabilitation of Occupied Areas")and it could not afford to see these politically sensitive funds consumed by the fires of inflation. Second, in December 1948 Washington unequivocally ordered SCAP to make the quick attainment of Japanese economic self-sufficiency its primary objective. In order to do this, trade had to be increased, which in turn required the establishment of a fixed commercial exchange rate for the yen, and this could not be accomplished without halting inflation. The world was changing: the Cold War had begun, the communist revolution in China was nearing its denouement, and the United States now saw Japan as a strategic territory of critical importance to its own security and not just as an object for political reform policies that had grown out of the ideological confrontations of World War II.

On the Japanese side a group of planners within the ESB led by Inaba Hidezo* drafted a five-year plan for Japan's economic reconstruction. It called for investment in heavy and chemical industries as the best way to increase the value of exports and to end price subsidies. Yoshida eventually disowned this plan, not because he disagreed with its contents (it is very similar to the plans MITI actually implemented during the 1950's) but because he believed that planning was synonymous with socialism.

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Influenced by his own background and several of his closest associates, Yoshida felt that the best medicine for the Japanese economy would be to open it up to the world economy and to the discipline of international competition.

The most important of Yoshida's advisers during this period was Shirasu Jiro* (b. 1902). A graduate of England's Cambridge University,