Japan by the Japanese/Chapter 15.7

In Japan, the practice of issuing Government bonds for public loans began with the foreign public loan (bearing 9 per cent. interest) which was issued at London in April, 1870. Since then the necessity of undertaking public works and measures of various descriptions has led to a frequent issue of public loans, there being twenty-one issues in all. A brief synopsis is here given of the various public loans, together with the various objects they were designed to meet.

1. The public loan issued during the Restoration of 1868. This financed one of the greatest reformations of institutions in Japan. During this reformation various old customs were changed, many bad influences were removed, and a great number of civil and military works were initiated. The financial requirements of this historic reformation were met by the Act of March, 1873, called ‘New and Old Public Bonds Act.’ By this Act, the debts which had been contracted by the feudal Princes were converted into Imperial public loans. Consequently, two kinds of public loans were issued—i.e., the ​New Public Loan and Old Public Loan. This was the first issue of domestic public bonds in Japan.

In the year 1871 the Government gave permission to the feudal Princes and their retainers—except those in public service—to engage in agricultural, industrial, or commercial pursuits, which had been denied to them under the old régime. These retainers, however, did not possess the capital necessary for such purposes. In order to remove this difficulty, the Government issued pension bonds since the year 1874, and delivered them to those retainers in exchange for their hereditary pensions, and for the convenience of the beneficiaries one-half of these pension bonds were given in cash. In order to procure funds for the cash payment just mentioned, a public loan bearing 7 per cent. interest was issued in London in 1873. At that time the pensions of the feudal Princes and their retainers were estimated to cover three-fourths of the total revenue of the Government; consequently, the drain on the treasury was so heavy that these systems of pensions had to be reformed. Finally, the Government decided, to reform the institution of ‘rice-pension’ to ‘money-pension,’ and afterwards, in 1876, the ‘Voluntary Capitalized Pension Bond Act’ was promulgated, by which Act the old system of pensions was abolished, and Voluntary Capitalized Pension Bonds were delivered instead of money-pensions.

In the year 1878, as a relief to ‘Shinto’ priests, who had suffered by the reformation of the institution of ‘Shinto’ shrines, the Pension Bonds for ‘Shinto’ Priests were issued.

2. Public loans issued for the prosecution of public works. Since the Restoration, the Government recognised various administrative institutions, and issued public loans for public works. The most important of these public works was the improvement of the means of communication, especially the construction of railways. The first loan which the Government issued for this purpose was the public loan bearing 9 per cent. interest floated in London in 1870, to which allusion has already been made. With the money realized by this loan railways were constructed between Tokyo and Yokohama, and Osaka and Kobe. In course of time the issuing of public loans for public works became increasingly necessary; consequently, the Government issued these loans in 1878. This was the first issue of public loans at home. With this fund the railways between Kyoto and Otsu, Tsuruga and Ogaki, the new road along Shimizu, and the water-way of Nasu Plain, were constructed, and the methods of mineral and coal mining were improved.

In the year 1884–1885 the Government undertook to issue the Nakasendo Railway Bonds in order to connect the two ​great cities of the Empire—Tokyo and Kyoto—by rail along the Nakasendo. It was found, however, that to complete this work would be very difficult, because of the configuration of the country, which is exceedingly rocky and mountainous, and so at last the Government decided in 1886 to give up the construction of the proposed railway along the Nakasendo, and to appropriate the funds for building a line along the Tokaido.

The funds realized by the above-mentioned loan being insufficient to cover the expenses required for the construction of branch lines from the Tokaido trunk line, the Supplementary Railway Bonds were issued in 1889.

The Government issued the Railway Public Loan in 1893, and constructed railways between various important places in the Empire. To construct railways in Hokkaido—northern territory of the empire—the Government issued another public loan, and this is called the Hokkaido Railway Loan. Neither of these loans has yet been completely issued.

3. Public loans issued for the purpose of military expansion. The rebellion in Kagoshima—south-western territory of the empire—in 1877, caused much military expense, which could not be supplied from the ordinary revenues. The Fifteenth National Bank, which had just been established, was willing to furnish some financial aid to the Government, so the Government borrowed the required money from the bank. In the years 1886–1889 the Government issued a Naval Loan to construct docks and forts, to manufacture arms and ammunition, and to build battleships and torpedoes. At the outbreak of war between Japan and China in 1894, military expenses were so great that the Government, with the agreement of Parliament, issued a loan of 250,000,000 yen for the contingent expenses. This is called the War Loan.

4. Public loans issued for the adjustment of the financial administration. Simultaneously with the reorganization of the political administration at the time of the Restoration, the Government was confronted by an urgent necessity of putting the financial system in order, and as the first step in this direction, it enacted a new regulation in 1873, by which the Government successfully undertook the withdrawal of the various forms of money that had been issued by the different feudal Princes. The bonds by which this was effected are called the ‘Kinsatu Exchange Bonds.’ Since then various measures of financial reform were carried out, and as the result of these measures, as well as of the natural economic development of the country, the financial world of Japan attained by about 1886 a stage of progress which afforded the Government a good opportunity for consolidating ​the public loans at a rate of interest much lower than those it had hitherto been paying. The result was the promulgation in 1886 of the ‘Consolidated Loan Act,’ which enabled the Government not only to lighten the treasury charge, but to simplify the management of the business connected with public debts. By means of the Consolidated Public Bonds—5 per cent. interest—issued under the above-mentioned Act, the Government redeemed the Kinsatu Exchange Loan—bearing 6 per cent. interest; the Voluntary Capitalized Pension Bonds—bearing 6 per cent. interest; the Public Works Loan—bearing 6 per cent. interest; the Voluntary Capitalized Pension Bonds—bearing 7 per cent. interest; the Nakasendo Railway Bonds—bearing 7 per cent. interest; and the money borrowed from the Fifteenth Bank—bearing 7.5 per cent. interest.

The Government also borrowed from the Bank of Japan in 1890 the funds required for redeeming the Government paper money, but no interest is paid on this loan.

5. As a result of the war with China in the years 1894–1895, the Government again found it necessary to undertake the adjustment of the financial administration, and to take steps for the development of economical affairs, and initiate and extend public works of all sorts which were needed after the restoration of peace. The Government determined to issue the Public Works Loan for the improvement of the existing Government railways, the construction of Hokkaido railways, the establishment of steel works, the extension of the telephone service, the establishment of the leaf tobacco monopoly, and so forth. This loan was issued in 1894 with the consent of Parliament, the interest being 5 per cent. per annum. The Government further felt the necessity of issuing bonds for the public works in Formosa, and, getting the consent of Parliament in 1899, it promulgated the ‘Formosan Public Works Loan Law,’ for the financing of special works of importance, such as the construction of railways and harbours and the survey of the land and woods. A portion of the above-mentioned Public Works Loan, amounting to 10,000,000 pounds sterling, was issued in London in 1899 at 4 per cent. interest. The Public Works Loan and the Formosan Loan have not yet been completely issued.

As above mentioned, the Government has frequently issued public loans for the reformation of institutions, the adjustment of financial administration, and the prosecution of various public works.

In all there have been twenty-one issues of public loans, but eleven of them have been already redeemed, so there remain only ten of them to be redeemed in the future. In ​other words, 306,697,260 yen out of the total debts of 825,462,300 yen have been already redeemed, therefore 518,765,040 yen remain to be redeemed in the future.

The following table shows the amounts of the national debts, redeemed and outstanding:

In the foregoing table, 17,577,750 yen of the Railway Public Loan, 78,052,250 yen of the Public Works Loan, 2,000,000 yen of the Hokkaido Railway Loan—amounting in all to 97,630,000 yen—are covered by the £10,000,000 of the 4 per cent. sterling loan floated in London. The total unissued amount of these three public loans and the Formosan ​Public Works Loan is 105,746,290 yen. This sum, together with the 10,000,000 yen worth of bonds which are to be issued for the adjustment of pensions according to the Law No. 50, 1897, aggregating to 115,746,290 yen, represents the total amount of public loans to be issued in the future.

The outstanding amounts of the public debt, and its ratio per capita at different periods in the past, may be summarized as follows:

When 4,880,000 yen of the foreign loan (bearing 9 per cent. interest) issued in 1870 represented the total amount of national debt, the average rate for one person was only 14 sen 7 rin (3½d.); but since 1872, the old public loan, the new public loan, and some other public loans being issued, the outstanding debts soon reached about 28,000,000 to 55,000,000 yen, the average per capita ratio being from 84 sen 3 rin (1s. 10d.) to 1 yen 62 sen 3 rin (3s. 4d.). Since the issuing of the voluntary capitalized pension bonds of 173,900,000 yen in 1877, the amount of the outstanding debts became about 227,000,000 to 283,000,000 yen, and the average per capita ratio was increased to from 6 to 7 yen (12s. to 14s.). Since the Public Works Loan was issued in 1896, the amounts of public loans were suddenly increased. After 1895 the amounts unredeemed were increased from 300,000,000 to 500,000,000 yen, and the average share per head at the end of 1901 increased to 11.72 yen (23s. 6d.).

According to the present programme of the Government, all the outstanding debts, together with those to be contracted during the fiscal years 1902–1908, will be completely cleared off by the end of the fiscal year 1945.

The redemption of the different outstanding loans is to be completed respectively as follows:

The loan for the redemption of paper money is to be converted to a new public loan (bearing 5 per cent. interest, the redemption of which will be completed in the fiscal year 1929).

N.B.—Since the war with Russia began one foreign loan of £10,000,000 and two local loans of £10,000,000 had been raised by June, 1904.