meiji restauration and all of that.

But not that many know of the turbulent and vibrant economic periods that Japan has enjoyed

and suffered after the World War II

Incidents of toilet paper hoarding, land prices of more than six thousand dollars for just

a post-card size area, infinite money printing and more

Get your beverage of choice and sit back to enjoy this video of the economic history of Japan

Japan suffered huge losses from WW2

Nearly 3 million died and a quarter of the whole national wealth gone

Reduced to burning fields and ash, recovery was something that was hard to see

Japan being the losing side was occupied by the US established GHQ (General Headquarters),

led by Douglas MacArthur

Fearing the rise of communism US made its mission to democratize Japan by establishing

free markets and empower the middle class

The way this was done was by first dissolving the Zaibatsu which in other words were the

monopolies and oligopolies.

Some of these had names such as Mitsui, Mitsubishi, Sumitomo, Nomura and so on.

Sound familiar?

Yes, these behemoths were dissolved but they found a way to regroup years after, which

is the reason the biggest holding companies names you see in Japan today are mostly grandchildren

of these Zaibatsu.

They go a long way even before the war.

Other measures the GHQ took was a land reform where government purchased and sold land to

independent farmers, and Labor market reform which made Labor Unions stronger.

These were all measures that helped to create and empower the middle class that was to help

Japans economy recover and accomplish the feat we today call the “japanese economic miracle"

But things didn't start rosy.

To fund the war, Japan had issued an huge amount of over 200% of its GDP in war bonds, which

is actually close to the level of debt that Japan has again accumulated today

but that's a different story.

Anyway, these war bonds that Japan had issued during the war matured at the same time as

solders who had been paid in the “military currency” went in to exchange them for real

money.

This caused a sudden peak in the currency circulation.

However, Japan's industries hadn't still recovered from the war, so there was a shortage of general

goods.

A lot of cash but no available goods lead to hyperinflation.

To deal with this inflation Japanese banks did something unprecedented.

They ordered a freeze on peoples deposits while announcing that they were going to transit

to a new currency “the new yen”.

Because the “old yen” deposits were frozen and people couldn't withdraw but only a

small sum of money, and after the transit period old yen would lose its value

what ended up happening was that the out of reach money people had in their accounts

would lose its value.

And just to take things even further a wealth tax was introduced where if you had over 100,000

yen on your account you were subject to a tax of 20-90

So basically this was the government defaulting on its debt on the expense of its people.

After a couple of years the deposit freeze was lifted and with it the inflation returned.

This time an US economist Joseph Dodge created an austerity-policy package called “Dodge plan”.

Basically a plan to tighten spending and balance budgets.

This forced the Japan's economy into deflationary recession.

However clearing the economy of bad debt and the re-structuring helped to create a foundation

for companies to grow.

The following Korean war, created demand for Japanese companies which helped boost the

economy, creating the first stepping stone for the Japanese economic miracle.

With the demand from the US-troops fighting in the Korean war, Japanese industries started

to recover and grow.

Employment in the manufacturing industry increased and with the help of the labor unions, so

did workers wages.

This lead to increased consumption leading to a virtuous cycle that stimulated Japanese

domestic demand.

This was the beginning for an era of outstanding growth.

Wash-machines, refrigerators and televisions became new household staples.

Going forward, Japans experienced a particularly big growth during the Tokyo Olympics

of 1964.

During these years the average real GDP growth was a whopping 9.1%.

The Olympic mania encouraged a series of public work projects such as the famous Shinkansen

bullet train and many new highways.

This mania also extended to the stocks and securities in which from 1957 to 1961

In only four years the amount in investment funds grew 10 times

Leading to a new catchphrase “Bye bye banks, Hello investment funds”.

However as often happens, these kind of highs usually wear off, which started to happen

after the Olympics.

This and a policy of monetary tightening made the economy slip into a brief slump.

For Yamaichi securities trading company this was the last nail to the coffin as it was

already on the brink of insolvency.

And this is where something extraordinary happened.

The BoJ announced that it would lend to Yamaichi as much as they needed without any collateral.

Basically the government was saying that this company was “Too Big To Fail”.

But this was only a fraction of what was to come after.

Despite this however, the economy churned on and the focus started to shift to a new problem.

Tokyo was getting too crowded and countryside too desolate.

To solve this issue the prime minister candidate Tanaka Kakuei made an election promise for

“Remodeling the Japanese Archipelago” with an intention to connect big cities with

the country side.

The areas that were candidates to remodeling were soon rushed with opportunistic investors

that started hoarding land, which then sent land prices soaring, also causing inflation.

Adding insult to injury, the first oil crisis stemming from the Yom Kippur war in the middle

east causes an increase of over 70% in the oil price, putting a halt to the remodeling

project and worsening the inflation.

The inflation got so bad it was 31.4% in 1974.

This would mean that if you had a nest egg of 100,000 thousand dollars

at the end of the year it would have the purchasing power of only 68,600 dollars.

This oil crisis would also spark the infamous “Toilet paper commotion”, which just shows

the power of group psychology.

It all started with the Minister of Economy Yasuhiro Nakasone advising people to “save paper”

which started a rumor that paper was going to run out.

Then shortly after a regular supermarket in Osaka that had nothing to do with this statement

had an advertisement banner that read “Toilet paper so cheap its gonna run out!”.

Advertising cheap toiletpaper was normal as many shops used it to lure customers who would

then buy other products as well.

And this is where the gear switched to next level.

Shortly there was a line of over 300 housewives and in just 2 hours this discount toiletpaper

actually sold out.

After this people started to complain that the store didn't have the “discount toilet

paper” anymore, and quickly turned to buying the regular price toiler paper which was also

soon sold out.

A local newspaper got a whiff of this commotion and soon the headlines read:

“Toiletpaper price doubles” which further led to more people rushing to hoard this newly re-valuated

asset.

While this craziness was going on the fundamentals behind toilet paper production hadn't actually

changed at all.

However because the toilet paper manufactures knew that they could use this commotion to

their benefit, they artificially reduced the market supply by withholding some toilepaper

in their warehouse as they would be able to sell it more expensive later on.

The government was worried this could get out of control so they convinced the toiletpaper

manufacturers to ship their excess stock to the markets.

Retail shops would build huge display mountains of toiletpaper to show that there were not

a shortage and soon after the commotion was gone.

The real problem however was the inflation.

To put an end to it the BoJ tightened monetary policy which in turn slowed the economy growth

putting and end to the Japanese economic miracle in the year 1975.

This was also the time that Japan started to issue bonds (debt) on a regular basis.

Creating the start for the biggest debt nation to come.

Despite the growing debt, Japan was still an economic powerhouse and a net exporter.

Soon however the country would be hit by another oil crisis in 79, this time caused by the

Iranian Revolution.

This time Japan would figure out how to make this crisis into an opportunity.

Because of the rising oil prices Japan first re-structured its production, reducing its

dependency on oil by shifting to nuclear energy and producing more fuel efficient cars.

This is also the period when Japan started to mass produce semi-conductors and computers

that would find its way to all the corners of the world.

This exporting had netted Japan a huge trade surplus, and its economy grew to the

size of the third biggest in the world – a title that formerly belonged to Germany.

But as we know – someones trade surplus is another ones deficit, and this another

one was the US.

Another reason to this deficit was the appreciation of the dollar from 1980-85 which made Japanese

exports cheap.

On the losing side of this trade however was US companies such as Caterpillar, IBM and

Motorola, who started a campaigning and lobbying the government to intervene.

In 1985 this bore fruit in the form of the Plaza Accord, where the US dollar was devalued.

More expensive Japanese yen would mean that Japanese exports would now be more expensive

for foreigners so the BoJ decided to compensate by increasing the domestic demand.

To increase domestic demand BoJ did what they know best – loosen the monetary policy by

cutting rates and doing more Quantitative Easing – basically printing money and throwing

it at the market.

And the markets loved this.

All this cheap money went straight into the stock market and the real-estate inflating

a huge bubble.

The Ginza district in Tokyo had peak land prices of 36,500,000 yen for square meter

which would be the equal for paying about 600,000 yen or about 6000$ for a land the

size of a post card.

However the domestic markets weren't enough to satisfy the hunger of this newfound capital,

and soon enough Japanese were gobbling up real-estate and other assets all over the

world, such as the Hollywood studios, famous golf courses and even the famous Rockefeller Center.

Many even speculated that Japan would take over the US as the biggest economy in the

world.

Watching as its citizens and companies would buy properties and stocks through heavy leveraging,

the BoJ started to worry about the economy heating too much.

To cool things down the BoJ started to gradually tighten monetary policy by rising the rates,

which ironically pricked the bubble and threw a bucket of cold water over the speculators.

People who had gotten accustomed watching their assets double in value now had to face

the bitter truth that it was all a mirage.

After the bubble popped stocks would crash about 50% and land prices about 15-18%.

Companies, banks and individuals who had over-extended themselves found themselves underwater.

As the price dropped, everyone were scrambling to get out of the market and those who were

left holding the so called hot potato would be the in trouble.

All of a sudden banks and companies found themselves holding tons of bad debt, that

was threatening their solvency.

So what could they do?

If you guessed tamper their accounting books with various tricks, then you were correct.

The banks and companies would sweep these bad bets under the rug in order to not lose

trust, but word shortly got out and global trust towards Japanese banks and companies

took a big hit.

The accounting books were ordered to be revealed and it was imminent that a lot of companies

and some banks were to go out of business.

However as Yamaichi securities were bailed in the 60s so would many companies be bailed

again.

But not Yamaichi securities, they went bankrupt in -97.

Seems that sometimes you just don't get a second chance.

But those companies that were deemed “too important to fail” were bailed by the government

making way for a new word that is “zombie company”

By bailing all of these companies that would have otherwise failed created a sort of distorted

market conditions were the companies were artificially left alive through cheap money.

Some argue that this was a substantial reason for the long stagnation period that we know

call “the lost decade” or “lost decades” as Japan still haven't really recovered

from this.

Going towards the new millennium Japan was yet stricken by the Asian financial crisis

of -97 and the dot.com bubble in 2000, but these incidents had only limited impact on

the already slumped Japan.

During this Heisei recession manufacturing started to escape from Japan to cheaper countries

like China.

Companies not just in manufacturing but other industries also started reducing costs by

laying off workers or replacing full-time workers with temporary workers, who didn't

get the same benefits and bonuses as regulars.

Banks also experienced a big change, but unlike workers who got downgraded banks got buffed

with something called Japanese financial big bang.

To put this in short, a whole lot of financial regulation was de-regulated making it easier

for banks to do whatever.

This also made it possible for the banks to re-group into these huge holding companies