Japan’s Participation in the IMF and Settlement of Its Prewar Foreign Debt

During the time of the prewar international gold standard, Japan had issued large amounts of external bonds, mainly in London and New York financial markets, as the balance of Japanese external bonds issued peaked in 1930 at JPY2,268 million, accounting for about 15 % of Japan’s estimated GNP. But Japan’s access to raising such bonds was closed off by the Great Depression and the collapse of the international gold standard. After the end of World War II and 6 years of occupation led by the General Headquarters, Supreme Commander for the Allied Powers (GHQ/SCAP), Japan regained independence in April 1952 and joined the IMF and the World Bank in August of that year. Japan’s participation in the Bretton Woods system had been realized with the strong support of the U.S. government, which had desired an independent Japanese economy after a turnabout in its postwar policies toward Japan. At that time, expectations had risen in Japan that this would open a path toward access to foreign capital for purposes of economic restoration and development in place of American aid. While its participation in the Bretton Woods system enabled Japan to raise long-term funds from the World Bank, to do so it needed to resolve the issue of repayment of outstanding prewar external debts on which it effectively had defaulted during World War II. In July 1952, a conference on resolution of these debts was held in New York between the Japanese government and representatives of British, French, and the United States’ bondholders under the terms of the San Francisco Peace Treaty, and an agreement was reached in September of that year, under which Japan resumed payment on nearly all government bonds, not including those issued in France. The success of negotiations on resolution of external debts was important in that it meant Japan had regained the trust of international society and served as the starting point for Japan’s postwar access to foreign capital.