600.9417/67
The Ambassador in Japan ( Grew ) to the Secretary of State
[Received April 8.]
Sir: There seems to be a widely held impression that Japanese export trade at the present time represents an export of capital, which may ultimately bring about a financial catastrophe of the first magnitude. The idea is, apparently, that Japanese goods are being sold abroad at less than the cost of production; that Japanese steamship lines are all so heavily subsidized that they can afford to carry Japanese products for practically nothing; and that in general Japanese business is so closely organized and is so determined to invade foreign markets that it will export at a loss. The assumption is that the Government in some way taxes the public or issues bonds to reimburse the exporter.
The fact is that the Japanese are conducting their foreign trade at a profit. Their textile, rayon and heavy industries are earning and declaring large dividends, besides making adequate provision for depreciation and building up reserves; their shipbuilding activities are operating at a profit, and in the face of the general depression, their carrying trade is able to show an operating profit. The same remark might be made of a number of other lines of activity. Political and industrial calculations based on the assumption that the Japanese are confronted with mounting deficits because of their present economic activities are complete misapprehensions. The Japanese are making money selling their products at present rates. They produce fair quality articles at cheap prices, they are proud of their ability to do so and intend to continue the practice. There is no way of stopping them, because there is a world demand for their products which appeal to people of limited income.
It is true that public finance in Japan shows a deficit, due largely to elaborate military and naval expenditures which will absorb nearly half of the budget of Yen 2,193,414,000 for 1935–36. It may be said, however, that deficits are not confined to Japan, and compared to the figures of other countries, the current year’s estimated deficit of Yen [Page 950] 950,000,000 to Yen 980,000,000 is not alarming—Japan is merely following the fashion. The money has nearly all been spent in Japan, and the demands of the military for Japanese-made products have had the effect of stimulating Japanese industry; factories have been built and industrial processes modernized on a large scale. The total national debt stood at Yen 9,160,166,000 at the end of 1934, less than Yen 1,500,000,000 of which represents foreign loans, and much of this has been purchased by Japanese subjects in recent years.
Internally, bank and savings deposits have increased during the year and there is no evidence that the public is unable to absorb further government obligations. Industrial concerns have been able to adjust many of their old debts because of increased earnings. In so far as this has been done out of work done on government account it may be said to be a transfer from a private to a public debt. All things considered, however, the domestic financial situation appears to be in better shape than it was a year ago. Taking the international or exchange value of the Yen as its true value, Japan has practically 100% gold coverage, so the nation has little to fear in regard to its currency control.
The expense attendant upon Japan’s Manchurian venture is the weak spot in the local economic situation. This is considered so important that the Minister of Finance warned against it in a public statement. Exports to Manchuria amounted to over 400 million Yen in 1934, against imports of 131 million. There seems no doubt that this heavy excess of exports to a country which is poor and unable to pay, represents capital export to a very great extent. Much of it, however, is capital for investment on which the Japanese hope to obtain a return at a later date. It is not money completely lost, although the return is uncertain.
Another feature of Japanese life which causes uneasiness is the agricultural situation. There is much distress and discontent in the rural districts. It would be a mistake to consider it a new phenomenon, although there have been a number of natural calamities this year which have aggravated the miserable conditions under which cultivators of marginal land in Japan have existed for generations. Recent years have seen a decided improvement in the standard of living in Japan and the condition of the rural population has become a social even more than an economic problem.
In conclusion it may be said that so far as can be seen at present, Japan is prospering economically. This wealth is being spent by the public on armies and navies and on a politically ambitious project in Manchuria, the returns from which are yet to be seen. So long as Japanese export continues, it would seem that the country can continue its present course without too much difficulty. There is moreover every indication that Japanese foreign trade has a solid basis [Page 951] and that exporters are supplying profitably a demand for cheap goods; this situation appears to be a permanent feature of international trade, and is not to be exorcised or dismissed with assumptions of “capital export”.
Reference, Annual Report of Commercial Attaché, Tokyo, for 1934.42
Respectfully yours,
- Not found in Department files.↩