Naka-Darumi in Japan

Japan's businessmen have a happy phrase to describe their resurgent economy: Jimmu kieki--the biggest boom since the days of the legendary Emperor Jimmu, who founded the Japanese empire in 660 B.C. In five years the gross national product zoomed 62.5% to $25 billion annually, while industrial production jumped almost 100% to 219 on the 1934-36 index. But last week Japan had two somewhat more sober phrases to quote: naka-darumi, meaning pause, and oi-uchi, meaning a tightening. The pause in the boom had been brought about by the credit pinching of Finance Minister Hisato Ichimada to keep inflation from toppling the boom.

Both naka-darumi and oi-uchi seemed to be exactly what the country needed. Japanese industry, which must import virtually all its raw materials, has been expanding faster than it could sell the manufactured goods on world markets, thus threw its vital balance of trade out of kilter to the detriment of its entire economy. Through the second quarter of 1957, imports poured in at the rate of $5.1 billion annually, 60% more than in 1956 and $2.4 billion more than the most optimistic estimate of exports. The drain on Japan's foreign-exchange reserves reduced them from $1.5 billion at the end of 1956 to $875 million last month (or to $270 million, excluding frozen, debts and import contracts still to be paid). In addition, home-front inflation has hiked the cost of living nine points since 1953, with a 5.2% rise in retail prices alone since last year.

Tough Medicine. To tighten money, Finance Minister Ichimada asked Japan's central bank to 1) hike its rediscount rate from 7.3% to 8.4%, 2) tighten up reserves of commercial banks to make loans harder to get, and 3) raise deposit requirements on import licenses from 5% to 35% of the shipment's total value, thus immediately tying up an estimated $40 million worth of importers' funds. As a result, imports dropped an average $25 million monthly, were actually slightly behind currency-earning exports for the month of October. Moreover, inflation at home lost some of its steam. With the squeezing of bank loans, commodity traders were forced to unload their goods, and retail prices stopped climbing.

All told, Japan's industrial production may drop as much as 10% this year as a result of the government's campaign. Yet few Japanese see signs that the credit pinch will push the economy into serious deflation. For one thing, Japan's traditionally thrifty industrialists have strong cash reserves to fall back on. While net profits rose 23.1% between June and December 1956, companies increased dividends by only 2.2% (to 14.1%), retained the bulk of their earnings. As for Japan's consumers, heavy savings from past years (12% of disposable income v.7% in the U.S.) plus a near-record 371 million-bu. rice crop give them plenty of money to spend. Department store sales are up 23% for 1957 despite the credit pinch, and in one rice-rich village on the island of Shikoku in Southern Japan, the population of 300 families bought 300 motorcycles, 300 electric washing machines, and five electric refrigerators last month alone.

Austerity & Growth. Finance Minister Ichimada does not expect an overnight cure for Japan's expansion troubles. Japan's international payments may actually wind up $400 million in the red by the end of fiscal 1958. But for fiscal 1959 he hopes to balance Japanese trade by boosting exports to $3.1 billion while holding imports to $3.2 billion. Instead of leaping ahead by 10% to 20% each year, national income and industrial production may only grow 3% or 4% next year. Says Finance Minister Ichimada, who calls himself "a realistic optimist": "Our keynote is austerity. There can be no improvement in living standards without growth. But stability is lost if the foundations of growth are destroyed."

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