894.51/392
The Ambassador in Japan (Grew) to the Secretary of State
[Received December 5.]
Sir: I wish to refer to my despatch No. 117 (undated but written in early September), entitled “Present Economic Conditions in Japan in Relation to Future Contingencies”,38 and especially to the summary thereof, in which I stated as follows:
“The internal economic situation in Japan has improved appreciably in the last two months. In the early summer the position of the farmers appeared to be desperate and drastic relief measures were urged. At the present time, with the firmness of the rice market and the very pronounced rise in the silk market, and with measures authorized which will relieve the cases of extreme need, the agrarian community can be considered to have temporarily tided over the crisis. The falling exchange value of the yen has assisted manufacturers and exporters and has caused a rising tendency in domestic prices.”
In the two months since the report above referred to was written, there has been a very marked improvement in practically all phases of the Japanese economic situation. It now appears certain that Japan is about to enjoy a period of great prosperity. It will be a false prosperity, based on the depreciation of the currency and enforced governmental spending, and the nation will undoubtedly have to meet the [Page 725] cost of the artificial boom eventually, but for the present the nation is most optimistic regarding industrial and commercial prospects, although doubtful regarding governmental finances. The following summary of the principal economic phases will explain the situation.
[Here follows review covering Japanese industry, agriculture, foreign trade, and finance.]
Summary.
Economic conditions in Japan have shown a remarkable improvement in recent months, due principally to the fall in the value of the yen and large governmental spendings. Industries are very prosperous, foreign trade is more active than for years past, agriculture has been greatly aided by the rise in the yen price of raw silk, the circulation of money has improved, the banking panic has disappeared, and the balance of international payments is much less unfavorable to Japan than was expected.
As a result of this false prosperity, the danger from the reactionary-fascist element has been removed, as this element no longer has social and economic unrest as a pretext for action. Moreover, the prosperity will permit the financing of military operations in Manchuria for another year or two, unless such operations assume very large proportions.
Predictions.
According to a well-informed observer of Japanese financial and economic conditions, Japan can expect a period of unusual prosperity for one and a half to two years, during which time the factories will expand rapidly and production will rise to greater heights than ever before in Japan. Gradually, however, the world will impose tariffs against the advantage which Japanese goods possess in the depreciated yen, while prices will rise in Japan and with them costs of production will become greater. In addition there will be increased taxation burdens because of the growing national debt and the cost of military operations, as well as the cost of the paternalistic policy which the Japanese Government adopts toward agriculture, industry and finance. These adverse factors will gradually make themselves felt and will eventually cause a collapse of the artificial prosperity brought about by the depreciation of the currency. When the collapse comes, there will be a depression worse than the one just past, because in the meantime industry will have over-expanded and production will be greatly in excess of the normal needs of the country.
Respectfully yours,
- Not printed.↩