It has been noticed that during the three years 1896, 1897 and 1898 the Japanese imports have been immensely in excess of their exports. This is probably due to the necessity of obtaining plant in great quantities for the immediate increase of the many new industries that have sprung up all over the country in so short a time. This financially has undoubtedly resulted in a distinct loss to the nation. The Chinese War indemnity brought a good deal of gold into the country, but the greater part of it has been expended in augmenting the navy and in the purchase of war materials. Fortunately, trade throughout Japan in 1899 was distinctly flourishing, thanks mainly to the abundance of the crops in the preceding year, and also to a curb having been put on exaggerated industrial activity, whereby, as already intimated, the imports were in excess of the exports, and the danger of a crisis in this direction was averted. This extraordinary commercial development in so remarkably short a period reflects the greatest credit upon the Japanese people, but we must not expect that it will continue progressing without encountering occasional checks, and there are not a few thoughtful people who foresee that the Japanese factories will soon have to compete very seriously with those which have been recently erected in the free ports of China. In this respect it may be remarked that salaries have risen at Shanghai, as well as at Osaka and Tokio. The acquisition of the island of Formosa will probably before long enable the Japanese to cultivate cotton and other tropical produce on their own territory, which will, of course, be a great gain to them.
CHAPTER VII
THE FINANCES OF JAPAN
Flourishing condition of Japanese finance on the eve of the war with China—Present Japanese financial problem the result of the important military, naval, and public works undertaken by the Government at the close of the war—Enormous expense of this programme, demanding a loan of £24,000,000—Gradual method of paying off this debt in nine instalments—Impossibility of floating the loan on the home market, all Japanese capital being locked up in the various newly-created industries—Debts incurred in connection with the programme of expansion, whereby the ordinary Budget was doubled—Progressive scale of taxation from the present date until 1905—Absolute necessity of augmenting certain taxes—Projected imposition of increased taxation, especially upon land and on beers, wines, and spirits—Taxation as compared with the population of Japan and other countries—Prospects of Japanese finance.
Before the war with China, Japanese finance was in a most brilliant condition, and the fiscal year April 1st, 1893, to March 31st, 1894, the close of which preceded hostilities by only a few months and which is the last of which accurate accounts have been published, showed a return of £8,588,300 ordinary and £315,913 extraordinary revenue, making a total of £8,904,213, as against £8,458,187 expenditure, the surplus being £446,026, which on a Budget of £10,400,000 was a very creditable but by no means an exceptional result. As a matter of fact, there had been only one deficit, that of 1891–92, resulting from the exceptional expenses incurred by the nation through the disastrous effects of the earthquake of 1891, one of the most terrible on record even in Japan, where these dreadful visitations are of very frequent occurrence. The whole financial tendency of the preceding years is summed up in the statement that at the beginning of the year 1896–97 £3,900,000, derived from accumulated surpluses, was at the disposal of the Treasury, although £2,300,000 had already been withdrawn from this reserve fund to help in defraying the expenses of the war.
On the other hand, the National Debt at this period was not higher than £28,350,000, of which £1,570,000 was paper money in circulation. It had therefore diminished since 1890–91 by £2,300,000, of which £1,450,000 was due to the withdrawal of the paper money. These notes had been issued at a period when the new regime was not firmly established, the insurrection at Satsuma still to be suppressed, and the Government unable to obtain cash, even at a very high rate of interest. In 1881 the premium upon silver, the standard currency, had risen to 70 per cent., thanks to the energy of Count Matsukata, the very able Minister of Finance. It fell to 9 per cent. by 1884; in 1886 par was reached. The paper money of the State and the national banks was gradually withdrawn and replaced by notes of the Bank of Japan, payable at sight. In brief, if we compare the figures of the Debt and the Budget with those of the population, 41,500,000, we can only envy the financial situation of Japan on the eve of the war.
Although the expenses of the Chino-Japanese War, which were partly covered by the indemnity obtained from China and partly by a public loan, undoubtedly checked the progressive prosperity of the country, they had nothing whatever to do with the present financial problem, which has been created by the magnitude of the military, naval, industrial, and commercial enterprises undertaken by the Japanese Government since the close of the war. Between 1895 and 1896 the Government decided to double the strength of the army, by raising the number of divisions from six to twelve (exclusive of the Imperial Guard), and it will now thus muster 150,000, as against 70,000 to 75,000 on a peace footing, and 500,000, instead of from 270,000 to 280,000, in time of war. The fleet is to be increased from 43 vessels of 78,000 tons, plus 26 torpedo-boats, without a single cruiser, to 67 men-of-war, of which 7 are first-class battleships, with a displacement of 258,000 tons, besides 11 torpedo-boat destroyers and 115 torpedo-boats. The creation of numerous arsenals and fortifications will eventually complete the programme, but beyond these War Office expenses, very considerable sums have been spent in the construction of railways, extension of telegraph lines, creation of new ports, subventions to the mercantile marine, and in the establishment of a second University at Kioto. The plan of railway extension which was decided upon in 1893 by the Diet must be completed according to contract in 1910. The other measures for the augmentation of the army and navy were included in the programme of the Ito Cabinet, which the Chambers accepted immediately after the signing of peace. This extra expenditure is to be disbursed in ten instalments from 1896 to 1906, and some further amendments and additions were made during the Parliamentary Session of 1896–97. The expenses entailed by these extensive schemes, together with the railways, are tabulated below:—
| Navy and arsenals | £22,650,000 |
| Army | 8,220,000 |
| Fortifications | 940,000 |
| Other military expenses | 680,000 |
| Railway construction | 7,980,000 |
| Increase and improvement of lines | 2,650,000 |
| Telephones | 1,280,000 |
| Construction of ports | 790,000 |
| Defence against floods | 1,970,000 |
| Subventions to banks | 2,060,000 |
| Creation of a tobacco monopoly | 820,000 |
| Subventions to various industries, commerce, agriculture, and other public works | 1,460,000 |
| Total | £51,500,000 |
Of this amount £32,495,670 was for War Office expenses, and £19,005,406 was intended for the very extensive commercial enterprises.
In 1893 a loan was voted to be issued as and when required to entirely cover the expense of the new railway lines. The indemnity was £30,000,000, plus £4,100,000 as compensation for the retrocession of the Liao-Tung Peninsula, imposed upon Japan by the Russian, French, and German Governments. This latter sum, as well as the first instalment, £7,500,000, of the indemnity was duly paid into the Japanese Treasury on November 8, 1895; the remainder was to be paid by regular instalments on May 8 of each year until 1902. China, however, availed herself of a clause allowing her to pay off the debt at once, and thus escape interest charges, which she did on May 8, 1898. Japanese statesmen had anticipated this act of the Chinese Government, and did not count upon more than £34,100,000. Of this sum £8,000,000 had been debited to the war account, leaving a balance of £26,100,000. In addition to these amounts, the Treasury held the accumulated surpluses, which, on April 1, 1896, attained £3,900,000, to which £500,000 must be added as the surplus in the Budget of 1896–97. The difference between the total of these receipts and the anticipated expenses was to be balanced by a loan known as ‘the loan for State enterprises.’ The following table exhibits the assets for this programme of expansion:
| Chinese indemnity[[17]] | £26,100,000 | |
| Surpluses of previous Budgets | 4,400,000 | |
| Railway loan, | £7,980,000 | 21,480,000 |
| Loan for State enterprises, | £13,500,000 | |
| Total | £51,980,000 | |