The Overheated Boom

Late last winter, when he launched his ten-year "People's Income Doubling Plan," Japan's Prime Minister Hayato Ikeda decided that his nation's economic growth rate (a phenomenal 17.7% in 1960) would soon stabilize at an average 7% a year. On that basis, he calculated, Japan could boost its gross national product from null $39.8 billion to $72 billion by 1970. But last week Japan's growth rate was still clipping along at over 13%--and the Japanese economy was suffering from too much boom.

Japan's businessmen are expanding their plants at an unprecedented rate, largely with imported heavy machinery. And as the benefits of the resulting superboom trickle down, Japan's consumers have gone on an epic spending spree, snapping up in ever increasing quantities everything from electric rice cookers to autos. In response, many Japanese manufacturers who used to produce for export are now producing for the domestic market.

For Japan, which like Britain must live on its foreign trade, increasing imports and decreasing exports ultimately spell economic disaster. Last week came news that the nation's foreign-exchange reserves had dropped more than $100 million in August alone, will have shrunk from $2 billion to $1.4 billion by the end of fiscal 1961. Frantically, Masamichi Yamagiwa, Governor of the Bank of Japan, called for import curbs and a substantial rise in Japan's already high 6.9% bank rate, to discourage businessmen from borrowing expansion capital.

But for optimistic Prime Minister Ikeda, whose political future rides on his promises of ever growing prosperity, this was medicine too bitter to take. Brushing aside the call for a higher bank rate, he contented himself with ordering his ministers to work out less drastic administrative measures for cooling off Japan's overheated boom. And he stoutly denied that the mounting balance-of-payments deficit poses any real threat to Japan's economic health. Says Ikeda blandly: "It is just part of priming the pump."

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