Establishment of Japan Into World’s 3rd Largest Economy

"Don't limit your challenges, challenge your limit."

Many people fear to take up challenges, with a thought of having a failure.

Even if you face failure, you somehow end up gaining some lesson from that.

Challenging yourself is very important.

Taking up of challenges leads to the creation of something new and big.

This is what led japan from being rotten but establishing itself into a 3rd largest economy in the world.

But no country develop upon its own,
it grows by facing some circumstances, some challenges, and some high-points and with support of its people and resources it becomes so.

Japan’s economic growth is known as the ‘Economic Miracle’.


Apart from that it, the Tokyo stock exchange has raised itself and became the 3rd largest stock exchange in the world through the market capitalization.

Along with this, it is also a member of G7, which is the Group of Seven. This organization is known as the international intergovernmental economic organization that consists of the seven largest IMF within it.

Not only this, it has big conglomerates like Softbank within it. Founded by Masayoshi Son, who is also the second richest billionaire in Japan.

Softbank is a firm which invest majorly on startups. For instance, OYO, UBER, OLA etc.

With such big personalities and such dedicated and hard work going on in Japan, it is establishing at a faster pace.

It took years for it to come at this position.
Japan took this challenge to establish themselves from the bottom...

And with years of hard work and efforts, they finally tasted success.
But to reach the pinnacle of success, more advancements are yet to come...


The economic history of Japan has been diversified in many ways.

Also, learning about the economic history of Japan has been a keen interest of many studies.

It was believed that government policies and revolutionary events had changed the impact of Japan's economy, but actually, it was the people's hard work and cumulative effort.

But for a better understanding of its economic history, one needs to get ample information about the 1800s and 1900s of Japan.

From its historical timeline, Japan has been known as a country which is quite aloof from the western powers.

In the late 1800 it had established into an open economy.
(P.s- In an open economy, economic activities happen between the domestic community and the outsiders.)

Although they tried to bridge the differences and aloofness from western powers, by getting agricultural technologies developed in the Tokugawa period, also the central government during the Meiji period carried out a series of modernization measures which enabled Japan to import technologies and ideas from the Western countries.

Tokugawa period aka Edo period, was when Japanese society was under the rule of Tokugawa Shogunate.

Japan was a country which was considered rich in precious metals.

Edo period led to the establishment of its first ocean-going Western-style ships. It was a 500-ton gallon type of ship which helped in the transportation of a Japanese embassy to America and then to Europe.

During this period, the era of Christianization was taking place and to eradicate this, Japan entered in a period of isolation called sakoku.
(Sakoku is isolationist foreign policy under which the relations and trade between Japan and other countries were severely limited.)

Within this time, Japan had enjoyed very stable and mild progress of the economy.

Edo period also had witnessed the growth of many sectors like the commercial sector, burgeoning urban centers, productive agriculture, highly developed financial and marketing systems and thus in many more areas.

In this period economic development included urbanization, foreign commerce, and diffusion of trade and handicrafts industry.

With this Japan was now serving a population of 1 million people during the mid-eighteenth century.

With rice being the base of the economy, it created opportunities for lot of people to work.
For instance, about 80% of the people were rice farmers in Japan.

Daimyos are considered as certain group of people who did the work of collecting the taxes from the peasants in the form of rice.
Along with this the price of the taxes were very high, it was somewhat around 40% of the harvest.

Another group of people known as ‘merchants’ were considered at a lower status.
But they did the investment in many areas like the credit instruments to transfer money, and lastly credit market grew and encouraged entrepreneurship accompanied by people.

This period also saw the development of Japan’s advanced forest management policy.
Also, by the period of 18th century Japan became successful in gaining the expertise in scientific knowledge about topics like the silviculture and plantation forestry.

This was a great amount of number at the time of the Edo period. 

So far so good. The economy of Japan was starting to establish.


The reconstruction of Japan in becoming the great economic power that too in less than forty years after the defeat of the World War II has been a somewhat remarkable exception in modern economic history.

It all started with the Japanese attacks on destroying the base of US Pearl Harbor in 1940. This was considered as a ‘surprise attack ‘for the people of U.S.

But what had led Japan to perform such an attack on Pearl Harbor?

Well, US being the world power, started sanctioning economic atrocities against Japan. For instance, this included the sanction of Trade, aircraft, Oil, Scrap metals and other key required goods.

Not only this, they even started to support China, especially economically.

This left Japan agitated.

The anger of its people grew towards the Western interference in Asian affairs.

And thus, for Japan the war seemed to be inevitable.


But US being the World Power had to retaliate against this.
Japan was initially happy with its successful attack on Pearl Harbor, but later it realized that it failed in its objective to destroy the complete Pacific Fleet.

But when the chance came of US in the World War II, it was successful in dropping two atomic bombs in Japan.

Two bombs destroyed everything and left Japan in a devastated situation.
Hiroshima which consisted a manufacturing center of almost 35,000 people was the first target area. Bomb called ‘Little Boy” was not so little in its impact.

Second target was Nagasaki which was blown away with a plutonium bomb named “Fat Man”.
These bombings respectively killed nearly 2,10,000 Japanese people.

Finally after the surrender of the Japanese government, World war ended but the impact of it was tremendously shocking.

It left Japan with dead bodies, ruins of infrastructure and degradation of its economy…..

With the defeat they also faced many challenges.

The most problematic and troublesome issue was of ‘unemployment’.

When the military forces were disbanded around 4 million people were left jobless.  Not only were this, but Japanese people living in abroad also forced to come back to Japan which led to the unemployment of 13.1 million people.

Due to such atomic attacks, Japan faced this severe loss.

Another problematic concern was that there was an emerging food and energy shortages.
With coal being the main source of energy at that time, it had dropped significantly after the defeat.

Koreans and Chinese people who subjected forced labor in coal mines also started to discontinue this process.

Not only this, but rice being the staple food was also in shortage. People were scared that they might starve to death during 1945-1946.

This further led to the rise of inflation.

This problem came into a function because large volumes of funds for provisional military expense had been circulated for various other works like salaries of troops, compensation for losses etc.


It was believed that from the 1960s to the 1980s the overall economic growth became large. For instance in 1960 it was 10%, 1970 4%, 1980 by 5%.

With this end of the period, Japan was moving towards the high wage economy.

But in the 1990s, the growth of Japan was slowed down due to the collapse of the Japanese Asset Price Bubble.
 (Japanese Asset Price Bubble was an economic bubble which came in 1986-1991 in which the

real estate and the stock market prices were greatly inflated. In early 1922, this bubble busted and let to Japan’s economy to be stagnated leaving it for the downfall.)

As a consequence of this, Japan had faced massive budget deficits and this entire term came to be known as the Lost Decade.

But still, some way or the other Japan tried to stimulate the economy especially in the years of 1999 to 2004.

For instance, the Bank of Japan initiated the purchasing of large scale assets to expand the country’s money supply. Initially, this policy couldn't show any bright colours but later with time it eventually began to affect the inflationary expectations.

With this that year, the GDP (Gross Domestic Product) growth was 2.8%, with an annualized fourth-quarter expansion of 5.5% crossing the growth rates of US and European Union.

This was just the starting for them.


Being left with the ruins and relics of factories, infrastructures and with almost everything, Japan was still able to reconstruct its economy from a fresh start.

Various reforms were set up for its recovery. Out of which two were the main.


Dodge plan is a plan which is initiated to be conducted by the Detroit Bank president, Joseph Dodge in the year of 1948.

The sole reason for it was to remove the American aid from Japan and bringing Japan back to being healthy.
Another reason was to prepare them for the Cold War.

For this Joseph introduced 3 main policies for that-
1) Balanced Budget
2) Suspension of new loans from Reconstruction Finance Bank.
3) Reduction and abolition of the Subsidaries.

It was believed that to achieve all these three points was impossible.

The Dodge Line Plan came out to quite successful in stopping inflation.
But the shock which came on the economic activity created a condition which was severe and thus, people expected a serious recession which resulted in a serious situation.

Indeed, the output which had come, soon began to decline.

The early period of the Dodge plan had caused Japan to enter into a recession, due to which labor unrest increased and things were somehow getting worse…

But something had changed this scenario.

A boom in the economy was coming their way…

With the ongoing depression going on in Japan, Korean War entered as a saviour for Japan. 

Korean War was started in 1950 and went on till 1951.
But with this, the total amount of the world trade was increased by almost 34% and many countries of the world including Japan received a significant boom in the economy.

Korean War greatly helped Japan to enhance its economy as well as its development into a world power.
This was because Japan played an important role and became the supplier of goods needed for the war.

Japan was benefitted as it has increased a total of 70% production.
When it came to business firms, they also received a greater boom in their business.

Not only this, foreign currency derived from the US army and military personnel reached gigantic sums from $590million to $800milllion in 1952-53.

With this, the Korea war also enhanced major effects on the plant and equipment investment and it also included technological innovations.  

Due to such sudden increases in production as well as the economy, the full recovery and stabilization was achieved by the end of the war leading it to the establishment of success.

With this, Japan restored its independence by signing the Japanese-American security pact in 1952.

Once the recovery period was covered, the Japanese economy entered into a period of high growth and high stability.

From here they started to reform their country by evolving various sections like Infrastructure, Agriculture, Industry, and finance, Services, Labor Force, Law and Government etc.
Let’s see how have they improved in each section and how this improvement established them as the World’s 3rd largest economy.


Japanese people have always made use of practical knowledge of technologies to expand the economy.

Japan has always spent largely on the construction of their roads. As the public's security is mandated for them.

Not only roads but railways have also been their prime factor.
Railways have been so prime that railway companies used to have competitions.

Rail companies like JR enterprises, Kintetsu Railway, Seibu Railway etc. competed with each other. Due to which Japan has established some extremely amazing trains.

The most famous is the Shinkansen trains which generally connects most of its cities. The English translation of Shinkansen is ‘Bullet Trains’.

This was built to aid the country's economic growth and development.
This train itself had impacted Japan so much that, yearly they provide ¥500 billion.

All trains are known for their punctuality and a delay of 90 seconds is considered as late.

Apart from this Japan had also imported about 84% of energy from other countries. Japan has been also considered as the largest liquefied natural gas importer.

Along with this, they have also been designated as the 2nd largest coal importer.

When it came to agriculture here also they ruled.

In any country, agriculture plays a vital role.
As the population is dependent on that.

When we talk about Japanese agriculture, well it has been amazingly established.
It entails 1.4% of the total worlds GDP.

The staple food which Japan contains is Rice. And thus, it is the 2nd largest agricultural importer in the world.


The best thing about the Agriculture sector is that it is highly subsidized and protected with governmental relations.

And, starting with a small agricultural sector it has outshined itself a lot.

The financial sector was the main player in the country.

If finances are well played off in a country, no one can stop it from becoming the largest country.                                                                                               
Countries are competing so hard with each other to reach the top level.

The pressure is so much that even the stock exchanges have to compete.

But again, Japan is outshining itself in this case also.
The Tokyo Stock exchange is recognized as the 3rd largest stock exchange in the world through the market capitalization of the world.

Also, it is the 2nd largest stock market in Asia with almost 2,292 companies being listed.

Nikkei 225 and the TOPIX, are the two most important Stock market indexes of the Tokyo Stock exchange.

To improve the slowing conditions in Japan, the Tokyo stock exchange along with the Osaka stock exchange has been merged.
This move was made as they believed that the economic conditions in Japan are suffering deflation as well as sluggish growth.

With its postwar conditions which led to a massive amount of unemployment in the country, Japan is continuing to get over this situation.

Since the postwar conditions in japan, the labour force has faced many structural effects like-

  • Shrinking population
  • Increasing numbers of women in the labour force.
  • A rise in workers education level

The basic employment structure which Japan follows is simultaneously hiring new graduates and ranking hierarchy.
This is because they think that graduates have more fresh and new ideas which can be beneficial for the company as well as the country.

Also, Japan has been trying to hire women to provide more employment options to everyone.

According to Shinzo Abe prime minister of Japan said that “while Japan's labour force decreased by 4.5 million in the past six years, the employment of women and elderly people each increased by 2 million. With a shortage of workforce, Japan has been trying to supplement the labour market with higher female participation which in turn will improve the conditions. ”.

If employment range is high automatically everyone in the country gets benefit out of that.

Apart from this, the service sector is accounted for as the three-quarter growth of economic output of Japan.

Also, technological developments impacted the growth of the economy very efficiently. As improvement in one technology influenced the growth of other technologies.

All these developments, all these small steps have led to the growth of Japan. In less than 40 years since World War II, it made itself the largest economy in the world. 


The ability of the Japanese people to successfully combine all the empowerment of knowledge and skills has been gained from the foreign countries and then by improving them on their own is a remarkable quality.

Japan being thrashed in WW II managed and reconstructed itself and became the largest economy. It not only shows how dedicated they are towards their work but it also shows their passion.

They are excelling in almost every sector and industries like automobiles, consumer electronics, textile, steel, agricultural products etc.

And lastly as Shinzo Abe the Prime Minister of Japan says,
The future of Japan’s economic growth depends on us having the willpower and the courage to sail without hesitation onto the rough seas of global competition.”

By Anjali