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The Dodge Line or Dodge Plan was a financial and monetary contraction policy drafted by American economist Joseph Dodge for Japan to gain economic independence and stamp out inflation after World War II. [1] It was announced on March 7, 1949. The Dodge Line was a major element of the so-called Reverse Course —a broader shift in the policies of the U.S.-led military occupation of Japan from an initial phase of demilitarizing and democratizing Japan to remilitarizing and economically strengthening Japan in response to rising Cold War tensions in East Asia.
On September 2, 1945, Japan surrendered to the Allied powers, bringing an end to World War II in Asia, and leading to the U.S.-led Allied Occupation of Japan. In the initial phases, the Occupation focused on liberalizing and democratizing Japanese society to ensure that Japan would never again be a threat to world peace. [2] Within this permissive atmosphere, the Occupation allowed the Japanese to pursue an expansionary economic policy, but the economy quickly overheated, leading to hyperinflation. [3] From September 1945 to August 1948, prices in Japan increased more than 700%, which precipitated major unrest across broad sectors of Japanese society. [3]
Meanwhile, Cold War tensions were ramping up in Europe, where the Soviet occupation of Eastern European countries led Winston Churchill to give his 1946 "Iron Curtain" speech, as well as in Asia, where the tide was turning in favor of the Communists in the Chinese Civil War. [4] These shifts in the geo-political environment led to a profound shift in U.S. government and Allied Occupation thinking about Japan, and rather than focusing on punishing and weakening Japan for its wartime transgressions, the focus shifted to rebuilding and strengthening Japan as a potential ally in the emerging global Cold War. Meanwhile on the Japanese domestic front, rampant inflation, food insecurity, and widespread poverty in the wake of Japan's defeat fostered the rapid expansion of militant leftist political parties and labor unions, leading Occupation authorities to fear that Japan was ripe for communist exploitation or even a communist revolution.
In order to address the twin goals of strengthening Japan economically and disempowering the Japanese left by taming inflation, the Occupation brought in Detroit banker Joseph Dodge as an economic policy consultant. In February 1949, Dodge arrived in Japan to take stock of the situation, and on March 7, he announced his plan, known as the "Dodge Line." It recommended:
These policies succeeded in getting Japan's rampant inflation under control, but caused significant short-term hardship for Japanese workers, leading to mass layoffs as the economy went into contraction, a painful period of economic adjustment known as the "Dodge squeeze." [5] Japan was plunged into a severe recession (ja:安定恐慌), which did not end until the massive economic stimulus produced by U.S. military special procurements in Japan following the outbreak of the Korean War in 1950. [6]
The fixed exchange rate of 360 yen to one dollar remained unchanged into the early 1970s, helping turbo-charge Japanese exports and fueling the Japanese economic miracle.
Year | GNP Growth Rate (%) | Inflation Rate (%) | Monetary Base Growth Rate (%) | Gov's Debt Growth Rate (%) | Trade balance to GNP Ratio (%) | Major Events |
---|---|---|---|---|---|---|
1945 | — | 51.1 | 148.2 | 9.0 | — | Surrender of Japan (Aug.) |
1946 | — | 364.5 | 67.6 | 418.3 | — | Financial asset freeze (Feb.); zaibatsu dissolution |
1947 | 8.4 | 195.9 | 132.9 | 75.9 | -6.2 | General strikes banned (Feb.); break up of monopolies, land reform, labor reform |
1948 | 13.0 | 165.5 | 61.5 | 135.1 | -3.8 | |
1949 | 2.2 | 63.3 | 0.3 | 56.0 | -2.0 | Dodge Plan (Feb.); Unification of multiple exchange rates to 360 yen per dollar (April); National Railway president Death (July) |
1950 | 11.0 | 18.2 | 18.9 | 1.2 | 0.3 | Korean war started (June) |
1951 | 13.0 | 38.8 | 19.9 | 24.0 | -1.9 | Treaty of San Francisco Korea War armistice talk started |
1952 | 11.0 | 2.0 | 13.8 | 16.8 | -2.3 | |
1953 | 5.7 | 5.0 | 10.8 | 16.6 | -4.5 | Korean War armistice signed (July) |
1954 | 6.1 | 6.5 | -0.9 | 2.3 | -2.2 | |
Japan was occupied and administered by the Allies of World War II from the surrender of the Empire of Japan on September 2, 1945, at the war's end until the Treaty of San Francisco took effect on April 28, 1952. The occupation, led by the American military with support from the British Commonwealth and under the supervision of the Far Eastern Commission, involved a total of nearly one million Allied soldiers. The occupation was overseen by the US General Douglas MacArthur, who was appointed Supreme Commander for the Allied Powers by the US president Harry S. Truman; MacArthur was succeeded as supreme commander by General Matthew Ridgway in 1951. Unlike in the occupations of Germany and Austria, the Soviet Union had little to no influence in Japan, declining to participate because it did not want to place Soviet troops under MacArthur's direct command.
Shigeru Yoshida was a Japanese diplomat and politician who served as prime minister of Japan from 1946 to 1947 and again from 1948 to 1954, serving through most of the country's occupation after World War II. Yoshida played a major role in determining the course of post-war Japan by forging a strong relationship with the United States and pursuing economic recovery.
Hayato Ikeda was a Japanese politician who served as prime minister of Japan from 1960 to 1964. He is best known for his Income Doubling Plan, which promised to double the size of Japan's economy in 10 years, and for presiding over the 1964 Tokyo Olympics.
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The economic history of Japan refers to the economic progression in what is now known as modern-day Japan across its different periods. Japan's initial economy was primarily agricultural, in order to produce the food required to sustain the population. Trade existed in this period, and artifacts of culture from mainland Asia were introduced to the Japanese, such as pottery.
The Reverse Course is the name commonly given to a shift in the policies of the U.S. government and the U.S.-led Allied occupation of Japan as they sought to reform and rebuild Japan after World War II. The Reverse Course began in 1947, at a time of rising Cold War tensions. As a result of the Reverse Course, the emphasis of Occupation policy shifted from the demilitarization and democratization of Japan to economic reconstruction and remilitarization of Japan in support of U.S. Cold War objectives in Asia. This involved relaxing and in some cases even partially undoing earlier reforms the Occupation had enacted in 1945 and 1946. As a U.S. Department of State official history puts it, "this 'Reverse Course'… focused on strengthening, not punishing, what would become a key Cold War ally."
International relations between Japan and the United States began in the late 18th and early 19th century with the diplomatic but force-backed missions of U.S. ship captains James Glynn and Matthew C. Perry to the Tokugawa shogunate. Following the Meiji Restoration, the countries maintained relatively cordial relations. Potential disputes were resolved. Japan acknowledged American control of Hawaii and the Philippines, and the United States reciprocated regarding Korea. Disagreements about Japanese immigration to the U.S. were resolved in 1907. The two were allies against Germany in World War I.
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Joseph Morrell Dodge was a chairman of the Detroit Bank, now Comerica. He later served as an economic adviser for postwar economic stabilization programs in Germany and Japan, headed the American delegation to the Austrian Advisory commission, and worked as President Dwight D. Eisenhower's director of the Bureau of the Budget.
The aftermath of World War II saw the rise of two global superpowers, the United States (U.S.) and the Soviet Union (USSR). The aftermath of World War II was also defined by the rising threat of nuclear warfare, the creation and implementation of the United Nations as an intergovernmental organization, and the decolonization of Asia, Oceania, South America and Africa by European and East Asian powers, most notably by the United Kingdom, France, and Japan.
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Sanbetsu (産別) was a Japanese trade union centre between 1946 and 1958. When it was founded in 1946 it emerged as the main force in the Japanese post-war labour movement and led a campaign of militant strikes. However, it suffered a major backlash after only a few months in existence when a planned general strike was aborted. Internal divisions followed, and the organization was never able to recover its initial strength.
Eleanor Martha Hadley was an American economist and policymaker. Because of her relatively rare research specialization in Japanese economics, during World War II Hadley was recruited first into OSS and then the State Department to support the United States' war effort while she was a doctoral candidate in economics at Radcliffe College. Hadley helped draft the United States' plans for dissolving zaibatsu business conglomerates as part of a planned effort to democratize Japan after the war, and she participated in implementing this economic deconcentration program when the postwar occupation brought her to Japan to work for SCAP as an economist.
The Shibuya incident was a violent confrontation which occurred in June 1946 between rival gangs near Shibuya Station in Tokyo, Japan. The years after World War II saw Japan as a defeated nation and the Japanese people had to improvise in many aspects of daily life. In the chaos of the post-war recovery, large and very lucrative black markets opened throughout Japan. Various gangs fought for control over them. There were also many non-Japanese "third nationals" in post-war Japan. These "third nationals" or "third-country people" were former subjects of the Empire of Japan whose citizenship then transferred to other countries like China and Korea. The Shibuya incident involved former Japanese citizens from the Japanese province of Taiwan fighting against native Japanese Yakuza gangs. After the fight, the Chinese nationalist government stepped forward to defend the Taiwanese.
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