COST OF THE WAR

Evening Post, Volume CXXV, Issue 19, 24 January 1938, Page 16

COST OF THE WAR

FEELING THE STRAIN

WHAT JAPANESE CAN DO

VIEWS OF EXPERTS

Unlike the other Powers, Japan did not have to light in the Great War to the point of exhaustion, says a writer in the "Sydney Morning Herald." If she had, Japanese publicists might be more wary than they appear to be in 'describing their country's readiness to bear much heavier war burdens than the present war with China imposes on them. There is clearly already an uneasy strain upon Japan's economic structure. It is so far not intolerable apparently; but when the boosters of public confidence in Japan speak of their country being able to spend 12,000,000,000 yen yearly on waron the grounds that the Great Powers in 1914-18 spent a corresponding proportion based on the average factor of national earnings, savings, and capital wealth—then ideas as well as loan issues are rocketing. The Foreign Affairs Association of Japan has just published a collection of the views of Japanese financial and industrial leaders. The English editions of Japanese newspapers publish other articles, written obviously for the same purpose of supporting confidence. A short survey of some of the arguments advanced is given below. TRADE WITH CHINA. Firstly, concerning Japan's trade with China—her chief "natural market" (as is always professed), a trade interrupted locally and spasmodically by Chinese boycotts, more definitely by the Manchurian "incident," and now again by the undeclared war against all Nationalist China.' Japan's exports to China valued in 1930 at 260,000,000 yen per annum, had fallen off by 1936 by 100,000,000 yen. But with the 1936 figures must be reckoned for comparison 150,000,000 of increased exports to Manchukuo, and another 260,000,000 to Kwantung leased territory; a net gain of 310,000,000 in four years. Much of this, of course, would represent incidentals to capital investments. Since 1931 Japanese investments in Manchukuo have increased by 1,200,000,000 yen. With ali the world Japan's trade doubled in value between 1931 and 1936—rising from 1,400,000,000 yen worth to 2,800,000,000. Gold production for 1936 was valued at 165,000,000 yen—of which 85,000,00 represented mining yields in Japan proper, 65,000,000 in Chosen (Korea), and 15,000,000 in Manchukuo. "Gold is being discovered in every part- of Chosen, and Manchukuo is destined to be another very important gold source." On these figures it is argued that Japan should be able to overcome the difficulty of deficit bonds. These amounted to 1,000,000,000 yen worth (ordinary and military budget inflation) up to the outbreak of the present war, and have been increased by another 3,200,000,000 now approved (September) for war commitments. CURRENCY STRAINS. How'much more can the Japan credit and business structure stand? The answers of Japanese commentators are:—(l)'As to the 1,000,000,000 peace budget deficiency — the 100,000,000 surplus set aside every fiscal year by the Government will easily cancel such bonds within 10 years." (This, of course, assumes no further ■ "drift into the red" of the ordinary budget accounts —a rather optimistic view.) (2) As to the war inflation, "these expenditures cannot endanger foreign exchange stability as the bulk of them are for domestic consumption. Financing (these bonds) offers no particular difficulty provided certain elementary precaution is taken.1' By this last phrase is meant cutting down home consumption, being "content with our old wardrobe for an extra year or two," pushing exports, and drastically regimenting imports. One writer declares roundly that development of artificial wool and other necessary fibres is now absolutely necessary. Japanese financial surveys further produce these facts: —National gold reserve 400,000,000 U.S. dollars; daily average note circulation, 1,472,000,000 yen (equal to 420,000,000 U.S. dollars). But in view of recent shipments of gold to cover American purchases, the satisfaction expressed with this "nearly 100 per cent, coverage" of note issue seems invalid. Comparing Japan's economic position in 1936 with 1904-5 (Russo-Japan-jese war), it is shown that production of all sorts is eight times as great !in value, specie reserves are 12 times, bank deposits and paid-up corporate (capital 18 times, foreign trade nine times, and revenue and expenditure figures nine times as great. In 1904-5 the Russian War cost Japan 2,000,000,000 yen in expenditure. II was met by raising 900.000,000 by foreign loans, 680,000,000 by domestic loans, 136,000,000 by taxation, and the balance by other methods oC emergency financing. The effort fimincinlly exhausted Japan, but that is not mentioned by the present commentators. "Money resources of Jupan in those days were never in excess of 1,000,000,000 yen. Today her monetary resources (so-called 'Finanz-kapital') are 30,000,000,000." One writer argues that "on this the nation should be able to spare 2,000,000,000 or 3,000,000,000 of wartime ' disbursements." Another reaches the same conclusion by saying that, Japan's production today being eight times as great, she can issue eight times as much bond paper as in 1904-5. Now of the 680,000,000 floated in the Russian War, 480,000,000 was actually floated during the war; and eight times this amount is about the total of the current appropriations. "NO LONGER REQUIRED." Another writer bids his people take heart because Japan's self-sufficiency in arms manufacture makes foreign credits "no longer required." Yet it is quite clear that Japan very earnestly does desire to create dollar credits to pay for huge imports of American war material, and also to maintain the yen exchange. How can she do this as well as meet the domestic stringency? The answer is ostensibly furnished by another array of figures showing Japan's capital and working assets. Annual national income is between 14,000,000,000 and 15,000.000,000 yen (12,500,000,000 in 1928. falling to 9,000,000,000 in the depression of 1932). Government revenue for this year is 1,250,000,000 yen (916,000,000 in 1928, and 696,000,000 in 1932). "If people's living expenditures are reduced to those of 1928, Japan can find another 1,000,000,000 to 2,000,000,000 in taxation; if lowered to those of 1932, another 4,500,000,000 to 5,500,000,000" Again, if taxes are increased by 2,000,000,000, another 23,500,000,000 worth of bonds (3j| per cent, interest, 20 years redemption) can be issued; if taxes are increased by 5,000,000,000 yen, 58,800,000,000 worth of new bonds can be issued! "The country's balance of international payments has gone from bad to worse." Excess of imports soared to 800,000,000 yen in the first ten days of August. "It is true that if 400,000,000 has been paid by gold shipment and the balance is to be settled "by additional gold exports, the profit recently provided under the Gold Fund. Spe-

cial Account will bu exhausted." Bui, it is countered, Hie imports were for .surplus Blocks (fur war, of course), and the favourable export season is now at hand. Finally, .faimnese holdings of foreign currency (at old gold parity) arc set out thus:—Foreign bonds (April, 1937), 390,000,000 yen (of which 200,000,000 were other than Manchukuo bonds), deposits and advances in foreign currency, 32. r).000,000 yen; the whole valued ai current exchange rates at 1,700,000,000 yen. (But the yen valuation is hardly proper for foreign purchases.) It is held that about 20 per cent, of these reserves could be mobilised. This, with annual new gold yield, so the apologists say, "will make possible the maintenance of foreign exchange for a'year to come." One wonders.