CAN JAPAN STAND THE STRAIN?
Commonwealth and Foreign
By MARC T. GREENE As the Sino-Japanese undeclared war continues on well into its second year it is clear that Japanese internal economy, if not the very existence of the Japanese Empire, is seriously menaced. No one can say just how much longer the strain can be endured, because no foreigner knows the extent of Japanese reserves. But the limit set by many informed persons has already been passed considerably, and it will surprise nobody at all familiar with conditions in Japan to see a break- down of some sort at any time. During the seven or eight years before the beginning of large-scale warfare in China Japan's economic achievements had been astonishing. Her oversee trade had grown by something like 700 per cent. To take care of this her shipping had increased by almost half as much, which in itself provided employment for hundreds of thousands and assisted in strengthening the economic structure.
The speeding-up of industry and consequent strain upon the workers everywhere, with a gradual decrease in the standard of living as everything centred upon the building up of reserves against the planned Chinese invasion, of course had its effect, both upon the stamina of the people and the quality of the goods produced. Everyone who has purchased anything Japanese during the past year or two, especially textiles, knows that they are of markedly inferior quality to those of six or seven years ago. Nevertheless, the great objective, to acquire reserves, both of goods and money, was achieved. In some industries, notably silk and rayon, production for the two years before the War exceeded sales by as much as 30 per cent. But this over-production was planned and systematic. It was intended to maintain the expansion of export trade when, in war-time, the capacity of industry was impaired, either by the enforced transference of factories to war-work or by a decrease in the number of employees.
Japan was well-prepared for war. But not for a long war. As everybody knows, it was expected to be over in six months, in a year at the most. A year and a half have passed. And if you are to believe the Chinese they have, like the American, Paul Jones, not yet begun to fight. The invader has accomplished nothing that brings him any nearer to a decisive victory. Yet his internal economy, his financial structure, is in an alarming condition. The living standard of the people, low for many years before the outbreak of the war, has fallen sc low now that it seems inconceivable that the Japanese masses, especially the agriculturists, can continue producing much longer. It has often been said that Japan's greatest economic asset was an ample supply of docile labour. That docility has already endured much. How long can it go on enduring ?
Japan's export trade has dwindled rapidly during the past year. And although statistics have not been compiled there is reason to believe America, her greatest customer for silk, has so far enforced the boycott of Japanese goods as to have cut purchases down by from forty to fifty per cent. This means an inability to buy the necessary raw materials, of which so few are produced at home. As the war drags on Japan's credit abroad must necessarily be impaired. And, with her gold nearly exhausted and every lending nation regarding askance the question of further loans, every factor in the economic position demands peace ere the crash comes. At the beginning of the last Japanese fiscal year, in April, 1938, the national debt exceeded 13,00o,000,00o yen. It is estimated that half as much more must be added during the present fiscal year, which will bring the debt up to nearly 20,000,000,000, or to the equivalent of a billion and a quarter sterling. Japan's normal income is about this amount. Out of it she used to save 3,000,000,000 yen or so a year. The war has wiped that out, as well as markedly decreasing the annual income. Yet what the Government is trying to do now is to increase the annual saving from three to eight billion yen.
There are indications that the attempt will be a hopeless failure. The monthly revenues expected from internal loans —the sale of bonds by every kind of forced method—are less than half the soo,000,000 yen anticipated. The heavy retail
Shanghai. sales-tax likewise is netting no more than half as much as hoped. Two-thirds of all new investments during the past year went into war industries and the proportion is steadily increasing. There is no revenue whatever to the Government from all this because it is tax-free. At the same time Japan's richest peace-time industries, the industries from which mainly the sinews of war must be drawn, are suffering an increasing loss. During the first half of 1938 cotton goods exports fell by zo per cent. In May, the high month of the normal export season, the total sale of goods abroad was 36 per cent. less than the year before.
Despite all this the cost of living in Japan continues to rise. Wholesale prices of commodities were 14 per cent. higher in April, 1938, than in April, 1937, and the repercussion is felt in every class of society, especially among the always low-paid and generally underfed workers. As a result of these things and of the growing shakiness of the Japanese financial structure the yen (nominally worth 2/-) has fallen so far that you can buy them for tenpence anywhere in the East outside Japan. People commonly purchase large amounts in Shanghai and take them into Japan either for the purchase of goods or for change there to other currencies. Persons travelling to America or to Europe through America are even going to Japan and booking passages there, instead of in China. But this involves a good deal of risk, being of course a violation of Japanese war-time regulations.
It indicates, anyhow, the growing lack of confidence in Japanese finance. The country is actually insolvent, and the world knows it. Even Japanese business itself, through so representative an organ as the Oriental Economist, admits it in urging a return to the free yen, "as a step towards restora- tion of normal foreign trade and national solvency." Goods of all sorts must be offered foreign markets at much lower figures if anything substantial is going to remain of Japan's export trade. But in view of the growing boycott sentiment throughout the world, and especially in America, it is doubtful if the freest kind of a yen will save the day. In addition to the plight of the silk industry as well as the cotton, production of woollens has fallen to about half of normal. This is partly due, of course, to lack of raw material. The reserve supply has been cut in half during the past year and imports are far below the quota. In rayon production, in which Japan has stood first in the world, the decrease has been most marked of all and most alarming All available figures indicate that the industry is operating now at less than a third of normal. The great loss in revenue from silk exports to America is said to have compelled a substantial reduction in phosphate imports, which is highly significant, inasmuch as the overworked and not especially fertile Japanese soil will not produce except under high and ever-increasing fertilisa- tion pressure.
There is reason too to believe that the continued large-scale purchase of war materials from America is threatened. That will be the most heartening news of all to those who deplore Japan's invasion of China and the methods followed in it, and who hope for a speedy termination of the war on terms suitable to China. Scrap-steel exports from the United States to Japan were only a little more than half as much during the first six months of 1938 as during the first half of the previous year. More significant was the position in respect of machine tools, which come to Japan mainly from America. Until this year they were being purchased at the rate of $3,000,000 worth every month. Since last summer orders are said to have fallen to less than $25o,000 monthly and still to be decreasing. The reason is, of course, that American manufacturers are beginning to regard Japan's financial structure with grave doubts and to be chary in extending credit. Japanese gold shipments to America will total in the neighbourhood of $75,000,000 this year, more than double her domestic production. In the light of this, and of the foregoing irrefutable facts, the conclusion that an economic and financial crisis is approaching and cannot be avoided unless the war with China is brought to a speedy end would seem to be inescapable.
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