By early 1947, the Cold War in Europe and the Near East induced a major reorientation in American occupation policy. The first harbinger of what became known as the “reverse course," in which the emphasis shifted from punishment and reform to political stability via economic reconstruction, came with a reappraisal of reparations policy. In 1946, the survey team headed by Democratic oilman Edwin Pauley proposed a punitive program built around the massive removal of Japan’s heavy and chemical industry facilities and their transfer to countries victimized by Japan’s wartime aggression. This draconian scheme was replaced in January 1947 by the Strike Commission Report, which recommended more lenient terms and highlighted the need for assisting Japan’s economic rehabilitation and selfsupport.
By this time, key policymakers, chief among them the American proconsul ensconced in Tokyo, began to emphasize the importance of Japan’s industrial recovery and resulting political stability. In a press conference on March 17, 1947, MacArthur declared that the occupation’s central objectives, demilitarization and democratization, had been largely achieved, and that SCAP’s next task was economic rehabilitation. In order to facilitate this transition, the general suggested, it was time to consider a peace treaty and the withdrawal of Allied troops from Japan. For its economy to grow,
Japan needed to engage in normal market-based trade free from SCAP’s regulations.359
MacArthur’s remarks, made without prior consultation with Washington, were largely motivated by his ambition for the 1948 presidential election. Coming five days after the proclamation of the Truman Doctrine, they nevertheless stirred strong reactions in Washington and in other Western capitals. Within the US government, vocal opposition came from George Kennan, the newly appointed first director of the State Department’s Policy Planning Staff. Viewing Japan along with Western Europe as a key laboratory of his containment policy, Kennan argued that granting Japan independence before the nation had achieved political and economic stability would compromise the United States’ global strategic position. Shortly thereafter, once the Marshall Plan had been launched, Kennan became actively involved in Japanese affairs and lobbied vigorously to block what he believed to be a premature peace with Japan.360
As the Cold War took shape in Europe, officials in Washington came to agree on the importance of Japan’s industrial recovery. In a revised policy statement (NSC 13/2) in October 1948, the Truman administration articulated its new vision. Democratization and demilitarization now took a backseat to economic growth and political stability. Labor strife had to be restrained, the economy had to be stabilized and reintegrated firmly into the Western capitalist world, and purges of undemocratic persons had to end, especially if they possessed proven administrative and technocratic credentials. Thereafter, occupation authorities began to crack down on Communists and their suspected sympathizers (the "red purge") and released nineteen suspected Class A war criminals, including Nobusuke Kishi, a prewar munitions minister and the future prime minister. That the three prime ministers who served in the latter half of the 1950s were all former purgees speaks volumes about the effects of the Cold War-induced "reverse course" on postoccupation Japanese politics. The return and entrenchment of conservative political forces, albeit in reconfigured postwar permutations, was a not-so-unwitting byproduct of American Cold War policy.361
The new US orientation was mirrored in the economic realm as well. In December 1948, Washington sent SCAP a nine-point directive for Japanese economic stabilization featuring a balanced budget, stricter lending criteria, more efficient taxation, wage and price controls, and increased regulation of trade and foreign exchange. The man charged with implementing this austerity program was Joseph Dodge. The former Detroit banker, experienced in handling a currency crisis in occupied Germany, arrived in Tokyo in early 1949 as economic adviser to SCAP. He instituted sweeping changes that shaped Japan’s economic development. Working closely with finance minister (and future prime minister) Hayato Ikeda, Dodge formulated what was dubbed "a super balanced budget" featuring a surplus of 156.9 million yen. A local-currency counterpart fund for American aid materials was established to be used for internal economic infrastructure development; credits were tightened and wages frozen; and, perhaps most importantly in the long term, Japan’s currency exchange rate was set at 360 yen to the dollar - the rate that would remain until the "Nixon shock" in 1971. The undervalued yen was expected to facilitate Japan’s export trade while helping to embed the Japanese economy in the Bretton Woods system through the now-almighty US dollar.362
World History
