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American Pressure and Japan's 1930 Gold Standard Crisis - Coggle…
American Pressure and Japan's 1930 Gold Standard Crisis
Economic/Political context
Japan
1920s: Decade of stagnation (
ikizumari
)
Began with the collapse of the postwar stock and commodity speculation bubble in 1920
Lasted for 12 years and characterized by
Persistent price declines
Wholesale prices, which had peaked during the post–World War I boom, collapsed in early 1920 and continued to fall until 1931.
Repeated banking crises
Financial crisis of the spring of 1927 triggered the worst bank runs in Japanese history
Led to the collapse of the Kenseikai cabinet.
Chronic trade deficits and mounting bad debts
Global
After WW1: internationally minded central and private bankers came to occupy a central position in global politics
J. P. Morgan & Co. of New York playing a leading role in supplying capital
The role of J. P. Morgan
Arranged major stabilization loans for European countries
Provided credit to Britain when it returned to the gold standard in April 1925
Comparable to the International Monetary Fund (IMF) in later decades.
Shift in the financial center
After 1924, most of Japan’s foreign loans were arranged in New York, placing American banks in the financial position formerly held by the British
1928, monetary stabilization in Europe was largely complete
Japan being the only major industrial nation that had not restored gold convertibility.
Role of J. P. Morgan and Thomas W. Lamont
Lamont’s visit to Japan in 1927
Purpose
officially described as a courtesy visit
Primary objective was to push Japan to return to the gold standard
accompanied by Jeremiah Smith, Jr., who had overseen Hungary’s return to gold
Reception
Lamont was welcomed as a hero and praised as “Japan’s savior” for his role in arranging reconstruction loans after the 1923 earthquake
American agenda
Lamont and Smith prepared a “Memorandum on the Japanese Condition”
criticized Japan’s economic policies and offered recommendations grounded in economic liberalism
American Position: Diagnosis and Prescription
Root cause
1927 banking crisis was not a consequence of the 1923 earthquake but of Japan’s failure to pursue sufficient postwar deflation
This allowed many firms that “should have been liquidated” in 1920–21 to survive, leaving banks burdened with bad loans and frozen assets
Criticism of government intervention
Proposed solution
undertaking decisive deflation
cutting government spending
returning to the gold standard
Pressure and the Final Decision
Mounting Pressure (1928–1929)
1928, J. P. Morgan & Co. continued to press Japan toward deflation
Russo-Japanese War bonds
£25 million sterling-denominated government bond (230 million yen) was due to mature in January 1931
Japan had no choice but to refinance the loan, which required the cooperation of American and British banks—both of which demanded prior monetary stabilization.
The Bank for International Settlements (BIS)
Created in 1929
Membership was restricted to “countries with stable currencies” (i.e., gold-standard countries)
Pressure of exclusion
Negotiations
1929, Finance Minister Mitsuchi Chūzō (of the Seiyūkai cabinet) concluded that lifting the gold embargo was an urgent necessity
Dispatched Tsushima Juichi, overseas financial commissioner, to New York to negotiate credit.
Minseito cabinet replaced in 1929
New government committed to budget cuts and to restoring the gold standard as quickly as possible
1929, final negotiations took place at J. P. Morgan & Co.’s headquarters.
American bankers’ conditions: Led by Lamont, American bankers delayed signing the contract until Japan’s 1930 budget was finalized.
November 10, the Japanese government announced the 1930 budget, which included even deeper spending cuts.
November 21, 1929, the Japanese government officially announced that the gold embargo would be lifted on January 11, 1930
Consequences and Historical Legacy
Economic Disaster (Showa Panic)
Gold outflows: The opening of the monetary gates led to an outflow of approximately 700 million yen in gold
Severe deflation
Production cuts, bankruptcies, urban unemployment, and worsening living conditions in rural areas
Collapse of Minseitō
Takahashi Korekiyo assumed the post of finance minister and immediately reimposed the gold export embargo, insulating Japan from global monetary flows
A significant economic recovery followed
Influencing Japanese economic decision-making for decades
1960s: During structural liberalization, many compared its potential consequences to the lifting of the gold embargo
1970s: Prospects of strict anti-inflationary measures raised similar fears of an “Inoue Junnosuke–style” recession
1990s: The financial market–opening “Big Bang” reforms launched in 1998 were likened to a “Heisei-era kin kaikin.”