In the modern imperial period after the Meiji Restoration in 1868, the Japanese government attempted to develop the economy by promoting the national slogan of “rich nation, strong army”. It was the manifestation of economic nationalism in response to western imperialism. Japan began the process of industrialization with the government leadership in the Meiji era, but later private sectors acquired greater scope of business freedom. However, after Japan suffered from a severe economic depression in the late 1920s, the military government began to intervene in the economy in the early 1930s. Eventually, the Japanese economy was devastated during the Second World War. After Japan's defeat, the United States, which led the Allied Powers, occupied Japan and postwar Japan began its economic reconstruction. The US occupation force implemented several reforms to demilitarize and democratize Japan, including the enactment of a new democratic constitution that proclaimed that sovereign power resides with the people and that renounced war as a sovereign right of the nation. However, its focus moved to the strengthening of Japan as a counter-communism force against a background of the intensification of the Cold War. After achieving independence in 1952, Japan under the Liberal Democratic Party (LDP) attempted to remilitarize Japan by amending a new constitution in the 1950s. However, this aim did not materialize. Since then, Japan focused on economic growth and achieved its “economic miracle” in the 1960s. Despite a slowdown due to the oil crises, the Japanese economy continued to grow in the 1970s and had a frenzied period of growth in the bubble economy in the late 1980s. Since 1955, when the LDP was created, Japan maintained political stability under the political dominance of the LDP (called the “1955 system”) until 1993. This political stability provided a favourable condition for economic growth in postwar Japan.

This chapter will introduce the Japanese economy by beginning with an analysis of the major developments of Japanese capitalism in the prewar era. The chapter will examine government economic policy after the Meiji Restoration, Japan's industrialization with zaibatsu economic conglomerates as an important economic actor, and the war-time planned economy of the 1930s until the end of the Second World War based on the extensive intervention in the economy by the military government.