Economics

At the outset of the Occupation, General MacArthur, acting under policy guidelines from Washington, D.C., made clear that the Japanese government was responsible for the economic recovery and stabilization of Japan. Though the United States provided foodstuffs in 1945-46 to stave off widespread hunger, the Japanese themselves were to maintain control over wages, prices, and the rationing of commodities in short supply. The Economic and Scientific Section (ESS) of General Headquarters, SCAP, did however, address issues related to reparations, the dissolution of zaibatsu (cartels) holding companies and subsidiary corporations, the purging of top business leaders, and legitimization of unions and collective bargaining. With prodding from Australia, SCAP demanded far more extensive land reform than envisioned by Japanese leaders. In December 1948, a directive, The Nine Principles of Economic Stabilization, was issued by the Truman administration and conveyed to Prime Minister Yoshida Shigeru. The directive marked a shift in Washington's policy for Occupied Japan from democratization to economic recovery as the top priority, next to security. Concerned that MacArthur was ill-equ�pped to implement the directive, Washington sent Detroit banker Joseph Dodge to insist on a program of austerity: a balanced budget; fiscal, monetary, price and wage stabilization; and a viable yen/dollar exchange rate together with maximum production for export. For their part in this mutual endeavor of economic reconstruction, the Japanese set up the Ministry of International Trade and Industry in 1949 to further priority production policies of targeting key industries for growth and expanding foreign trade.