JAPAN'S RISING COSTS

Evening Star, Issue 22720, 6 August 1937, Page 5

JAPAN'S RISING COSTS

m TO ARMAMENTS William Henry Chamberlain, staff correspondent of the Christian Science Monitor,’ writes;— Viewed from the financial standpoint, Japan might he compared to a man descending a mountain, who, after easily negotiating a gentle downward slope, begins to slide down a steeper place at an accelerated pace. It is a serious question whether the downward slide can be checked and moderated or whether it will go plunging on, gathering momentum, into the abyss of uncontrollable inflation. Wholesale and retail price index figures, ordinarily regarded as the dull stuff of special economic reports, are being raised to the status of first-page news, as it is being increasingly realised that the national financial equilibrium is in jeopardy. Part of the rising price tendency in Japan is, of course, attributable _ to the world-wide increase in the prices of minerals, raw materials, and agricultural products. But another ■ part is just as certainly due to the shady increase in budgetary expenditures during the present year and to the large outlay for military and naval expenditures. Japan’s budget for the fiscal year 1937-38 (the Japanese fiscal year runs from April to April), after several disputes, compromises, and changes, was fixed at the sum of 2,872,000,000 yen, an increase of about 560,000,000 yen over 1936-37. By comparison with 1931-32 the Budget has almost doubled, while military and naval expenditures have increased more than threefold, from 454,600,000 yen to 1,411,000,000 yen. The proportion of the Budget which is earmarked for defence purposes has risen from 31 per cent, to 49 per cent. Budgetary unbalance has been the price of Manchukuo and of the increased armament expenditures which Japan has regarded as essential to the maintenance of its self-asserted role as “ the stabilising force in East Asia.” Since 1931-32 no Japanese Finance Minister has been able to make both ends meet without recourse to borrowing, which in some cases has provided about a third of the State revenue. The estimates for 1937-38, for instance, call for the flotation of new loans to the amount of 965,400,000 yen. These so-called red-ink bonds are taken up by the Bank of Japan and, to a lesser extent, by the Deposits Bureau of the Treasury, an institution which administers post office savings and thus has funds available fpr investment in Government securities. The Bank of Japan, by open market operations, disposes of its holdings to commercial and savings banks, to insurance companies, and to brokers. LIVING COSTS RISE. For several years the absorption of new bonds proceeded quite smoothly. There was a gradual rise in the cost of living; but it was not so sharp as Jx» inspire [widespread demand} Jar

wage increases, especially in Japan, where labour is very imperfectly organised. Japan’s _ were placed in a very favourable position. Thanks to the drastic devaluation of the currency (the yen is worth only about a third of its former value in gold) they were able to realise much larger sums in yen from sales abroad without raising their prices; and until very recently the trend of wages has been downward rather than upward. But during the last few months the gentle inflationary trend has changed mto a much steeper incline. The retail price index, which had only risen from 129.6 to 157.6 between October, 1931, and July, 1936, leaped up to 171.9 by April, 1937, an increase of 9 per cent, in nine months. The wholesale index in March, 1937. was 25 per cent, higher than it had been a year earlier.

Faced with this sharp increase in the cost of living, Japanese labour began to show distinct signs of impatience. Strikes, accompanied by demands for wage increases ranging from 10 .to 30 per cent., multiplied. The Government took various steps to cope with the. situation. The tariff on imported iron, and steel was abolished. The strictest economy in the use of these materials was prescribed. A commission has been set up with a new to controlling prices. But it nn open problem whether the inflationary trend can be reversed after it has gone so far. Something like the spiral all-around rise in wages, costs, and prices which pessimists have been foreseeing for some years has actually started. The army and navy, after obtaining record appropriations and a record share of the national Budget see_ their objectives balked by higher prices of essential raw materials and higher wages which must be paid. This means that still larger expenditures will be demanded in all probability for 1938-39; the Budget for that year will almost certainly exceed 3,000,000,000 yen. But this will probably cause still higher Ibices, with wage* and salaries using

in proportion drastic of control of some kind are enforced. Tbo whole logic of the present' situ* ation seems to point to an extension; of State control over industry and for* eign'trade. A measure which will prob* aMy go into effect _ within the fairly* near future is rationing of imports through a licensing system. Therer will he an effort to cut down avoid-* able imports most rigorously, and to establish a priority system for all purchases abroad, with army and navy re-* quirements and essential raw ma» jodab aecddagiiad eoandeaaaon.