A Chronic Affliction: Capital Mobilisation in the Wartime Japanese Empire

In this post Tsz Ho Wong of University of Edinburgh discusses their ongoing research, supported by the EHS Research Fund for Graduate Students.

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Sanseitō, a purportedly ‘populist’, ‘(far-)right’ party, was in the spotlight in Japan’s recent Upper House election on 20 July 2025. Beyond their rhetoric advocating immigration restrictions, the party championed augmented government expenditure whilst reducing the consumption tax. Confronted with surging prices of staple goods, these expansionary fiscal initiatives resonated with the public, particularly at the grassroots. The market, however, has expressed apprehensions that loose fiscal policies could exert pressure on Japan’s highly indebted economy.

Public discourse regarding inflation and the nation’s fiscal stance has proliferated across social media, and concomitantly, there have emerged sporadic deliberations on Japan’s debt financing during WWII, albeit with a paucity of posts compared to the former. On 19 July, the X account of a private collector from Nagano, ‘Shinshū sensō shiryō sentā’ (literally translated as ‘Shinshū War Materials Centre’), shared two of his blog posts concerning war bonds and military scrip (gunpyō). He concluded the latter one by saying ‘Even today, there seem to be political groups saying we should print money and distribute it, but what happens when you increase the money supply while keeping economic capacity the same has already been demonstrated by the Japanese Empire during the Pacific War…Knowing history is indeed something that connects to the present day.’ Although one individual replied ‘I read it with interest, yet it is reckless to discuss it on the same level as current economic policy.’ (note 1) The blog posts attracted others to leave their observations such as, ‘That’s why deficit-financing bonds (akaji kokusai) were prohibited [by the 1947 Finance Law], right? Let’s glean insights from history.’ (note 2) Another respondent remarked, ‘Nearly four decades ago, when interest rates on government bonds exceeded those on bank deposits, I recommended them to an affluent elderly individual, yet he adamantly refused, declaring, “Following the armistice, war bonds became worthless, so I categorically will not purchase government debt!” This actually occurred.’ (note 3) Even though the comments are polarised, they demonstrate that the wartime fiscal policies implemented over eighty years ago remain pertinent to contemporary discussions about Japan’s fiscal policies, and persist as poignant memories for the Japanese, even across successive generations.

My PhD thesis examines the economic and financial mobilisation of the wartime Japanese Empire at national and local levels, as well as its implementation in Hong Kong, a city on the imperial periphery. It contends that the mobilisation of the nation’s capital transcended mere economic planning or propaganda relegated to paper. Rather, it was embodied in infrastructures, social networks, regional connections, capital flows, and investment decisions that permeated every corner of the empire.

In the first half of my thesis, I have analysed Japan’s debt financing mechanisms and revisited the conventional explanation that inflation in Japan’s home islands was driven by scarcity. I argued that Japan’s temporarily stable war economy gradually deteriorated and finally collapsed under the immense credit demand and the influx of colonial currencies. An earlier version of this section has been published in the Financial History Review (https://doi.org/10.1017/S0968565025100073). Building on Takeda Haruhito’s research, I have also discussed the consequences of financial mobilisation for the zaibatsu. Once WWII began, the zaibatsu had to raise funds from the public market to meet military needs, which inevitably eroded their control over their subsidiaries and diminished their characteristics of excludability. This illustrated that national interests were prioritised over individual and family concerns in a total war.

To culminate my thesis, I turn to war finance at the grassroots and at the empire’s edge. I will travel to the National Diet Library and the University of Tokyo’s Library of Economics, generously supported by the EHS Research Fund for Graduate Students, and examine the annual reports of the regional banks (chihō ginkō), the archives of the Yokohama Specie Bank (YSB), and the 1940s directories of colonial business entities. The research produced from this trip will elucidate the roles of Japan’s regional financial institutions and mutual aid organisations in financing war industries and colonial expansion. In addition to lending and investments, the opening of bank branches and a substantial augmentation in the number of post offices facilitated nationwide savings campaigns and the sales of the six types of small-denomination zero-coupon bonds (shōgaku saiken). Small bonds were essential for debt financing, as they yielded twelve billion yen for the Deposit Bureau of the Ministry of Finance (six percent of its capital), the second largest underwriter of government bonds after the Bank of Japan. Beyond domestic capital mobilisation, the government deployed military scrip and scrip-like currencies (gunpyō ruiji no tsūka) in occupied territories to spoliate colonial wealth, including in Hong Kong. The foreign exchange records of the YSB Hong Kong branch, moreover, revealed how the city became a currency exchange nexus, channeling hyperinflationary pressures from occupied China to Japan’s home islands, and eventually exacerbating Japan’s domestic inflation. Scholarly discourse often concentrates on the movement of people and goods. By tracing the movement of scrip, this research provides a novel analysis of Hong Kong’s previously overlooked pivotal role in the history of the yen bloc.

I am grateful for the generosity of the Economic History Society to support my data collection from the archives in Tokyo. The recent discussion on X about war bonds and military scrip demonstrated that these have become emblematic of economic mobilisation, as well as a bitter memory of wealth depredation. On the eightieth anniversary of the armistice, the debt financing of the Japanese Empire serves as a stark reminder of the brutal nature of such policies, as they mandated involuntary civilian participation whilst precipitating diminished living standards. The prodigious volume of government bonds, furthermore, imposed onerous financial burdens on successive generations. The capital mobilisation in a total war, therefore, engendered a chronic affliction for the Japanese populace.

References:

The two blog posts shared by ‘Shinshū sensō shiryō sentā’: