Japan’s Monetary Imperialism


Bank of Chosen, Seoul

by Michael Schiltz

We are living through ominous times. In the wake of the 2008 subprime crisis, the world economy has been battered by a series of profound shocks that have not been experienced since the 1930s. A series of shocks, indeed, because, as was the case in the Great Depression, the Great Recession is not one event, but a concatenation of different crises, some of which are geographically distinct, others of which differ in kind. The subprime mortgage crisis triggered a broader crisis of banking (credit), which eventually exposed problems with the fundamentals of the Eurozone setup, thus causing a currency crisis. In themselves, the problems of the Eurozone should also be considered manifold, and amenable to different cures. Whereas countries in its core are faced with liquidity problems (i.e. they will have to pay a higher risk premium for gaining access to foreign capital), countries in the periphery battle with solvency risk. In other words, foreign investors are scared off from channelling any funding to these countries, except at prohibitively expensive terms, because their level of indebtedness is simply considered unsustainable and they are seen as prone to default. As we now know, institutions as the European Central Bank have stubbornly resisted the latter characterization. In a bid to avoid ‘South-Americanization’, peripheral countries in the European Union have been given further borrowing facilities. So-called ‘haircuts’ on their outstanding debt have been rejected as out of the European question.

Much less remarked in the international press, yet something of considerable meaning for the European project was the political price tag that came with the denial of country risk. In several countries, democratically elected leaders have been replaced with technocratic governments. This is a contentious development, to say the least. Especially liberal British commentators have rejected this move as both illustrative of and adding to Europe’s democratic deficit. In the early 2000s, European citizens were not entitled to reject their country’s entrance into the Eurozone; now, they are denied the right the vote on how to leave it, and on which terms. There are doubtlessly many questions to be raised, and I will suffice by redirecting the interested reader to the many articles, blogs, etc. out there. An important lesson for our discussion, however, is to realize that there exists a clear and undeniable interface between monetary matters and politics, especially when the former, for instance through ‘internal devaluation’, upsets delicately negotiated relationships within the latter. This is not a stranger to existing literature. In one of the seminal examples documenting the practice of monetary advising, Marc Flandreau states as follows:

“We [. . .] reach a conclusion which might appear obvious to some: namely that at the very heart of money doctoring is an inseparable combination of economics and politics. The economic dimension defines the structural constraints faced by the various players involved in financial turmoil (range of opportunities, set of eligible policies). The political dimension, on the other hand, shapes the incentives of ailing countries, markets and international lenders.”

The money doctors from Japan

For obvious reasons, this political dimension has remained hidden behind the veil of professionalism contemporary money doctors prefer to uphold (it is easier to sell one’s policies as apolitical and specialist). Even so, history tells a different story. Contrary to (largely self-serving) descriptions, the 20th century has witnessed a number of instances of monetary advising in which case the political dimension was not only obvious, but pronounced as such as well. The Nazi preoccupation with the blocist orientation of the Grossraumwirtshaft is one example that comes to mind. Another, and the subject of my recent book, is imperialist Japan’s persistent drive for developing economic and financial self-sufficiency in a world order defined by Darwinist struggle and perceived as threatening to the country’s survival. If put in the right perspective, these cases must in a way be studied as sui generis. At least in the Japanese case, they concern monetary advice to countries under Japanese dominion, or in Japan’s direct sphere of influence: Tokyo was deeply politically invested there and made no secret of its political interests. Pre-war attempts to establish a “yen bloc” and a more or less self-sufficient Asian economic zone contrast sharply with the internationalist agenda of previous and later money doctors, and in many ways, Japanese policy makers actively defined yen diplomacy as a reaction against internationalism.

My recent book, The Money Doctors from Japan treats this definitional or observational variable as crucial, and argues that it had a non-negligible structural effect. As in the German example (compare Adam Tooze‘s excellent analyses), Japanese discontent with the geopolitical status quo and the consequent strive for a New World Order –called shinchitsujo, de facto literally identical to the German Neuordnung, both anticipated and brought forward in time a conflict dynamics that was for the American and Japanese side ultimately unavoidable. The war of the words (on the nature of the international order and the function and meaning of ‘internationalist’ policies and institutions as the Open Door or the China Consortium) then necessarily translated in a war of the worlds, or, in the Japanese case, an all-consuming struggle for survival in a world viewed as fundamentally averse to that prospect. Consequent events are well known. After Japan engaged in another war with China (1937), which American policymakers believed to cause an unsustainable drain on Japanese foreign reserves, it turned out to be willing to go to war with the United States. The outcome was disastrous, and not only for Japan. August 1945 did not only mark the end of Japanese expansionism in Asia. Staggering rates of inflation in the various corners of the Greater East Asian Co-Prosperity Sphere (for example, prices had risen by a factor of 350 in Singapore, and by a factor of 1,850 in Rangoon) provided a reminder that monetary and economic blocism had been a chimerical undertaking since its very inception.

Darkness at the foot of the Watchtower

Where had these anti-American and, more generally, anti-internationalist ideas come from? Should they be considered unique to the Japanese experience, or shared only with the 1930s German militarist counterpart at the time (Nazism)? Certainly not. Much earlier continental European scholarship had already argued that, if seen from the side lines, British and American ‘aid’ in establishing gold-exchange standards in South America and East Asia could hardly, if at all, be said to be devoid of any political consideration or implication. On the contrary, these efforts were instrumental in cementing Anglo Saxon supremacy in global affairs, something that was much resented among Europe’s relatively late coming imperialist powers.

It will come to no surprise that these, especially French, ideas were eagerly adopted in Japan. Acquainted with the insight that the view from the center is handicapped by a self-confirming bias (a famous Japanese saying holds that ‘it is dark at the foot of the watchtower’), the country’s policymakers after 1870 were exceptionally sensitive to the differentiation between center and periphery that is characteristic of the world’s monetary geography, even if (or should one say especially if) the latter stubbornly describes itself as global or apolitical (the gold-standard).

Japan’s reaction was particularly virulent, and has been given due attention in a large range of literature. This perception of vulnerability gave rise to a movement driven by the desire to catch-up to and even surpass Western powers in all domains of modern organization: politics, the law, education and so on. Monetary matters have thus far gone largely unnoticed in Western scholarship, but they were nevertheless crucial in many aspects. Only in 2004 did Mark Metzler explore the many political meanings underlying Japan’s motivation to adopt (1897), and later restore (1929) the gold standard.

Bank of Taiwan, Surabaya

The Money Doctors from Japan takes the discussion further by including the Japan’s meddling in monetary affairs in countries and regions in its immediate or less immediate sphere of influence. Having learnt from the many advantages that come with engaging in establishing gold-exchange standards in the world periphery, from seigniorage benefits to wiping out transaction costs, official and semi-official Japanese institutions alike were actively stimulated to partake in ‘currency imperialism’. Shibata Yoshimasa defines as follows:

“Currency imperialism is a [set of] policies by means of which a nation uses its own currency for circulation outside its borders or links it [to another currency] in some form; through which it employs such linkage in the settlement of its balance of payments, and through which it economizes with regard to the holdings of its own foreign exchange; and by means of which it furthers the investments of its enterprises [in another country], while at all times avoiding risks associated with foreign exchange. Currency imperialism is a powerful means of introducing informal empire and, especially in the case of occupied territories, a tool for enhancing linkages with the mainland. [. . .] It is a means of grasping empire from the perspective of monetary and financial policy.”

A brief history

As early as 1875, Japan issued so-called Trade Dollars or bōeki gin, with the explicit aim to ‘give our trade dollar sufficient sway to turn around the Mexican dollar’s monopoly position (…) and become the main means of exchange for the regions in the East’. Soon after, that it became more assertive with respect to foreign encroachments on its sovereignty. It dispelled English advisers to the Osaka imperial mint and consciously shunned away from international borrowing until as late as 1896. Victory in the first Sino-Japanese war (1894-1895) strengthened its determination to emulate Western expansionism. Taiwan was annexed in 1895, and brought on a gold-exchange standard only a few years later (as indicated above, Japan itself adopted the gold standard in 1897). In the wake of the Russo-Japanese war, in which Japan emerged once more as victorious, Korea too was incorporated in the empire. The draconian monetary reform plan known as the Megata reform effectively relegated Korea to a satellite in the empire’s political and economic set-up. Even nowadays, it is not easy to account for the military rigor with which Japanese reformers sought to control Korea’s currency and national finance. There, money doctors aspired to direct and total control over their Korean patient, and this aspiration was not only against the latter’s will. At times it was simply greater than their concern with the patient’s health: “Japanese policy was above all devoted to uplifting Korea, but unfortunately not its people,” as Hyman Kublin concluded long ago.

Hereafter, Japanese heavy-handed interventionism makes place for a different approach, for a host of reasons. First of all, and partly because of Japan’s Korea policy, international public opinion started to stress values as sovereignty over the paternalistic discourse of ‘uplifting’ the so-called backward nations. The US ‘Open Door’ agenda in particular was instrumental in mobilizing the press and the international public against unilateral decision-making towards the non-industrialized nations of the world periphery. This semantic move was, however, largely inspired by the disadvantageous position that the US experienced in Asia, in particular with regard to China. This geopolitical situation is the second reason for Japan’s softened imperialist rhetoric. Indeed, its relationship with the formidable adversary that was the United States made it necessary to appeal to what it referred to as the Far Eastern brand of the Open Door: pan-Asianism.

Japan’s proponents got a first shot at success at the time of the First World War. Aware of the European powers’ sharply diminished presence in East-Asia and buttressed by steeply increased foreign exchange reserves caused by the economic vacuum that was consequential of the former, a clique led by then Prime Minister Terauchi and Finance Minister Shoda used the momentum to strengthen the country’s foothold on the Asian continent. A series of loans, named Nishihara-loans, after the name of their broker, Nishihara Kamezo, was a high risk gamble to gain primacy in Asia by means of one decisive economic blow (it combined, among others, large-scale lending for industrial projects with a monetary reform effort). Its architects made a strategic mistake. Overly optimistic about the intentions of Chinese leaders, but especially naive with regard to the decisiveness of the American policy making constituency, Japan suffered a humiliating defeat. Apart from a token repayment of ¥5 million, the whole loans series, amounting to ¥140 million, had to be written off. Financier and statesman Inoue Junnosuke was clear in his rejection of the Nishihara plan:

“these investments with the central and provincial governments of China—investments running to several hundred million yen—resulted in a dead loss, and today Japan can recover neither the capital which she thus locked up nor one penny of interest on it. To put the matter in a nutshell, I would say that foreign investment was not practiced by this country, and that such trifling investments as were effected might just as well have been thrown into the sea.”

Inoue’s remarks may be said to apply as well, at least partially, to the latest, possibly most ambitious undertaking of Japan’s money doctors: the effort to incorporate the whole of Northeast China in a projected self-sufficient East-Asian Grossraum. Again, the time seemed ripe. Having left the gold standard and having adopted a countercyclical economic policy, Japan had escaped the worst effects of the Great Depression; the United States, in the meanwhile, was still struggling with a lagging economy. Even then, the geopolitical momentum was deeply anti-Japanese. As is shown in the Money Doctors from Japan, Theodore Roosevelt’s silver buying policy was in no small part inspired by a desire to ‘spite the Japanese imperialists in China’. Japanese policies at the time, from the drawing from the League of Nations to the Amau doctrine and a full-out war with China in 1937 only fuelled Western suspicion of Japanese actions. When, in 1940  American censors discovered a large war chest of dollars, fraudulently hidden in the books of the New York branch of the Yokohama Specie Bank, American reaction was swift and decisive. The financial blockade of Japan, recently documented by Edward Miller, at once choked the Japanese war economy, and the possibility of credibly leveraging the countries and regions within the Greater East-Asian Co-Prosperity Sphere on a yen-standard. The official end of Japanese blocism in 1945 would carry significance until the early 21st century.

About the Author:

Michael Schiltz is associate professor at the Institute for Advanced Studies on Asia of the University of Tokyo, Japan. He is the author of Money Doctors from Japan. Michael blogs at . Alternatively, you can find him on twitter as michaelschiltz. Or you can reach him at