THERE are a good many people, some so-called financial experts among the number, who are of opinion, and have expressed themselves to that effect, that the financial position of Japan is an unsound one. They depict that country as weighed down with a load of debt, mostly incurred for her warlike operations against Russia, and the revenue as largely mortgaged for the payment of the interest on that debt. Some of these experts have told us that the facility with which Japan was able to raise loans on comparatively moderate terms in the European money-markets, and the rush that was made by investors to subscribe to her loans, are matters which must have a baneful effect on the rulers of Japan. These latter, we are assured, found themselves in the position not only of being able to raise money easily, but of positively having to refuse money which was forced upon them by eager investors when the Japanese loans were put upon the market. The result was, so it has been said, to encourage extravagance in expenditure and to lead Japan to suppose that whenever she wanted money for any purpose she had only to come to Europe and ask for it. The financial experts who so argue, if such puerile assertions can be dignified by the name of argument, talk as if Japan were like a child with a new toy. The Japanese statesmen—in which term I of course include the Mikado, one of the world’s greatest statesmen—are by no means so simple as some of these financial experts would have us believe. Indeed, I will go further, and venture to assert that the statesmen are far more astute than the experts. The former emphatically know what they are about, financially and otherwise, and they are assuredly in no need of any Occidental giving them a lead in the matter. If I desired to adduce any evidence on that head I need only point to the Financial and Economical Annual of Japan, published every year at the Government printing office in Tokio. This exhaustive work deals with the different departments of Government. The section I have before me, which is for the year 1905, treats of the Department of Finance and it certainly serves, and very effectively serves, to show that the Japanese are not, as they so often have been depicted, children in matters of this kind. This Government handbook is not only exhaustive but illuminative. Published in English, everything of which it treats is explained in simple and concise language. There is an entire absence of that official jargon which tends, even if it is not intended, to render Government publications in this country unintelligible to the ordinary reader. The plain man who peruses this Japanese year-book can at least understand it, and he will, among other things, grasp the fact that the Japanese have got the whole question of finance in all its ramifications at their fingers’ ends.

The total National Debt of Japan in 1905 amounted to 994,437,340 yen, or, roughly, £100,000,000 sterling—a sum which the publication I have referred to works out to be at the rate of 19.548 yen, or about 39s. per head of the population. Of the debt some £43,000,000 was incurred to defray a part of the cost of the war with Russia. As an indication of the estimate of the credit of Japan within her own territory as well as abroad, I may record the fact that the Exchequer Bonds which were issued in the country in 1904 and 1905 for the purpose of defraying the extraordinary expenses of the war were largely over-subscribed, the first issue to the extent of 452 per cent., the second 322 per cent., the third 246 per cent., and the fourth 490 per cent.—a record surely! Abroad Japan’s loans were no less successful. The three issues made in Europe during the war were literally rushed for by the investing public, with the result that whereas in May, 1904, Japan offered for subscription a loan of £10,000,000, the issue price being £93 10s. and the rate of interest 6 per cent., in March, 1905, despite the fact of two previous loans and the exhaustion of the country incidental to a long and expensive war, she was able to place on the market a loan of thirty millions at 4½ per cent. interest, the issue price being £90.

A National Debt which amounts to less than £2 per head of the population compares very favourably with that of Great Britain, which totals up to something like £19 per head, leaving out of account the immense and yearly growing indebtedness of our great cities and towns. Furthermore, almost the whole of the National Debt of this country, as of the European Powers generally, has been incurred not only for unproductive, but as a matter of fact for destructive purposes. The vast loans of Europe have been raised for the purpose of waging bloody wars, some at least of which history has pronounced to have been gigantic, not to say wicked, blunders. Much of the National Debt of Japan, on the contrary, has been incurred for useful, productive, and even remunerative purposes—improving the means of transport, constructing railways, &c. The various loans outstanding up to the year 1887, on which Japan was paying very high rates of interest, as much as 9 per cent. on one foreign loan, were in that year converted and consolidated by the issue of a loan bearing interest at the rate of 5 per cent. per annum—a proceeding which materially improved Japan’s financial position and demonstrated that her credit stood high.

The war with China in 1894-5 necessitated fresh borrowing to the amount of over £12,000,000. Subsequent loans were issued in order to extend the railway system of the country and so develop its trade, for such public works as the establishment of a steel foundry, the extension of the telephone system, the introduction of the leaf tobacco monopoly, for the development of Formosa and, another most important matter, the redemption of paper-money. In the early days of her expansion Japan suffered greatly from the evils of inconvertible paper-money and strenuous efforts had for a long time been made by the Government for the redemption of the paper-money and the improvement of the general financial condition. In 1890 it was found that the reserve fund kept in the Treasury for the exchange of paper-money of 1 yen and upwards was insufficient to meet the demand. To meet this emergency, the maximum amount of convertible bank-notes issued by the Bank of Japan against securities was increased from 70,000,000 yen (£7,169,927) to 85,000,000 yen (£8,706,340), of which sum 22,000,000 yen were advanced to the Government without interest. This sum added to the original reserve fund of 10,000,000 yen (£1,024,275) was employed for completing the redemption of paper-money of 1 yen and upward. Subsequent loans for the purposes of the war with Russia I have already referred to. Besides funded Japan has also, like this country, had experience of unfunded debt in the shape of Treasury Bills, temporary loans from the Bank of Japan, &c. Financial operations of this kind are, however, I imagine, necessary for all Governments to meet current expenses. To briefly recapitulate Japan’s indebtedness and borrowings generally up to the end of March, 1905, these amounted to, in all, £140,045,030, of which sum £38,187,369 has from time to time been paid off, leaving a balance of £101,857,661 owing by the nation.

When we consider that for this large, but not unduly large, sum Japan has waged two considerable wars, and raised herself to the position of a great naval and military Power, that she has developed and organised a magnificent Army, provided herself with a strong, efficient, and thoroughly up-to-date Navy, has constructed railways and public works, and generally has placed herself in a capital position to work out her own destiny free from the fear of foreign interference, I altogether fail to see how she can be accused of financial extravagance. There is certainly no extravagance in the administration of her finances. London might, I suggest, learn much from Tokio in this matter. The system of financial check and thorough and rapid audit of public accounts is in Japan as near perfection as anything of the kind can be. Though the late war did produce, as I suppose all wars do, peculation, most of it was discovered and the punishment of the culprits was sharp and decisive. There was no opportunity for financial scandals in the campaign with Russia such as occurred during the South African War. Every country, of course, produces rogues, and war seems, inter alia, to breed roguery on a large scale, but in the Japanese methods of finance the checks are so effective that roguery in the public services has a bad time of it in war as well as in peace.

As I have already remarked, I am of opinion the debt of Japan is by no means excessive, especially in view of the fact that a large part of it has been devoted to purposes which are profitable. The debt works out, as I have shown, at something under £2 per head of the population, and that population is steadily increasing. That Japan is well able to pay the interest on her debt there can be no question whatever, and that when the present debt becomes due for redemption she will be able to raise the necessary funds for that purpose on terms even more favourable than those at which she has hitherto placed her loans I am confident. I must emphasise the fact, since so many persons seem to be oblivious of it, that this is no mushroom South American Republic borrowing money merely for the purpose of spending it on very unproductive and occasionally very doubtful objects, but a Great World Power sensible of its obligations, sensible likewise of the policy and necessity of maintaining the national credit, and confident that the national resources and the patriotism of its people will enable it not only to bear the present financial burdens but even greater, should these be found necessary for the defence of the country or for its development.

The ability of a nation as of an individual to discharge its debts depends of course upon its resources. No man possessing even a perfunctory knowledge of the resources of Japan would surely venture to express alarm at the increase in her debt and scepticism as to her being able to meet the annual interest on that debt as well as the constantly increasing expenses of administration. The resources of the country have, in my opinion, as yet scarcely been realised, and certainly have not been anything like fully developed. And when I use the word resources I do not employ it as it is so often employed in respect of minerals, although the mineral wealth of Japan is considerable. Her resources, as I estimate them, are to be found in her large and rapidly increasing population—a population perhaps the most industrious in the world, persevering, enterprising, methodical, and performing, whatever be its appointed task, that task with all its might as a labour of love, in fact, not as the irksome toil of the worker who is a worker simply because he can be nothing else. It is this great industrial hive which in the near future will supply China and other Eastern countries with all, or nearly all, those articles they now obtain elsewhere. What I may term the European industries of Japan have of recent years been largely developed or evolved. Take, for example, an item, insignificant in one way—that of matches. In 1904 matches to the value of 9,763,860 yen, or, roughly, one million sterling, were exported, and, strange to relate, European clothing to the value of 287,464 yen.

The glib people who talk about Japan biting off more than she can chew, and with a light heart borrowing money she will find a difficulty in repaying, have apparently not grasped the fact that Japan possesses many very eminent financiers who have quite as much, if not more, claim to be considered financial experts than some of those gentlemen who pose in that capacity here in England. The Japanese financiers have, moreover, the advantage of an intimate knowledge of their own country and its potentialities. The Japanese Government has always had the benefit of the advice of these singularly able men, and the result has been that its financial operations of recent years at any rate have invariably been well organised and skilfully and economically effected. I cannot speak too highly of the capacity shown by the Japanese in everything relating to banking. The Banks—of course I refer to the National Banks and not to the European Banks having branches in the country—have very quickly attained a high status in the International Banking world, and are undoubtedly on a very firm financial basis. And there are many great houses in Japan which, although not ostensibly bankers, cannot be left out of consideration in any remarks on this head. They occupy a position somewhat analogous to that of the Rothschilds in this country. Let me take for example the house of Mitsui, the name of which constantly crops up in Japanese finance.

The history of this ancient house has much that is picturesque about it, reminding one of the old merchant princes of Venice. The family originally belonged to the Jujiwara clan, and its origin is traced back to a certain Mitsui who lived as a feudal lord in the fifteenth century. At the time of the fall of the Ashikaja Shogun he lived in a state of perpetual war, and the god of war was not propitious to him. He retired to a neighbouring village and became the overlord of the district. He was succeeded by his son, who removed to Matsusuzaka, where he settled down as a private citizen and man of business, and laid the foundations of the present Mitsui house. In the middle of the sixteenth century his descendant became a merchant. His son moved to Kyoto, where he started a large goods store, which is represented in Tokio to-day by the Mitsui Hofukuten. Subsequently, at the beginning of the seventeenth century, a member of the same house invented and introduced the system of retailing for cash, which was an absolute revolution of business methods at that time in Japan. In addition to that he organised an excellent system for the remittance of money from one part of the country to the other, as also a carrier’s business—two very remarkable facts when one remembers in what a primitive and elementary condition of development the monetary business of Japan was at that period. In the year 1687 the Mitsuis were appointed by the Government purveyors and controllers of the public exchange, and in recognition of the excellent manner in which the duties were performed, they were given the grant of a large estate in Yeddo.

In 1723 the head of the family, carrying out the verbal wishes of his father, assembled his brothers and sisters and then and there drew up in writing a set of family rules which have ever since been practically the articles of association of the house of Mitsui. These rules embodied on business-like lines and in business-like language the principle that the family and not the individual forms the ultimate union in Eastern life. It was not one or the other of the six brothers of which the family consisted when these rules were drawn up that was to trade, but the whole family as one unit. There was to be unlimited liability as far as the property of each one was concerned, and the profits of all were to be divided. This agreement is the identical one under which the great house of Mitsui is run to-day. Under it the family prospered exceedingly, so that when Japan decided to take on some portion of Western civilisation, the Mitsuis acted as the principal financial agents of the Government, and it was mainly owing to the enormous financial resources of the house placed by them at the disposal of the Government that the country was enabled at the period of the revolution to pass successfully through what might have been a most disastrous crisis. As some reward for the great services rendered at the time, the present head of the house was created a peer. Since the opening of Japan to Western influence the business of the Mitsuis has enormously increased, and has been extended in various directions. In 1876 their money exchange business was converted into a Bank on the joint stock system, but with unlimited liability as far as the Mitsui family was concerned. In the same year, for the purpose of engaging in general foreign trade, the Mitsui Bussan Kwiasha was formed, better known in Europe and America as Mitsui & Co. In 1899 the family acquired from the Government the concession of the Meike coal-mines, and there was then formed the Mitsui Kaishan, or Mining Department, which has the management of this mining concession together with many others which have since been acquired.

To-day the house of Mitsui consists of eleven families under a system of joint liability bound together by the old rules drawn up close upon two centuries back. The wealth of the collective families is unquestionably great, and the confidence of the people of Japan in this great financial firm is shown by the immense amount of money it holds on deposit. In one or other branches of their varied businesses they give employment to a very large number of persons. They have initiated an exceedingly interesting system of insurance for their employees. Each is allowed 10 per cent. interest on his wages up to three years on condition of its being deposited in the Mitsui Bank, with the proviso that the sum shall be forfeited in case of the embezzlement of any of the Company’s money. During the late war, as well as in that with China, the Mitsui house had immense transactions with the Government in providing war material, steamers for transport, supplies, &c., and their magnificent organisation enabled them to carry out their various undertakings without the slightest hitch. I may also add that the name of Mitsui headed the various charitable funds which were started in the country in connection with the war. I am sure that this necessarily imperfect sketch of this famous Japanese house will convince my readers of the fact that in finance, as in other respects, Japan has already shown a capacity for holding her own with Western nations.

I have headed this chapter “Japan’s Financial Burdens and Resources,” but I am not quite sure that the word “burdens” is not a misnomer. Japan appears to me—and I may claim to have studied the matter with some little attention—to have no financial burdens, if burdens be taken to mean something that is inconveniently felt, that is difficult to carry. There is here no people weighed down under the crushing incubus of debt. There is a springiness and alertness, a go-ahead energy about the nation—symptoms not usually connected with the carrying of burdens. Japan seems to me to be in somewhat the same position in regard to finance as France was after the close of the war with Germany when the former nation found itself saddled with a tremendous debt incurred for war expenditure and the indemnity which had to be paid to the conquering nation. The fact, however, as we all know, instead of depressing the French people seems to have put the whole country on its mettle, with the result that the heavy interest of the enormous debt was easily met and effective steps taken to reduce the principal. The borrowings of Japan in Europe in the future are likely to be small, because she will be able to obtain what she needs at home, and provided she is not drawn into any war she will find her expanding revenue sufficient not only for the current expenses of administration as well as for the interest on her debt, but over and above all this enabling her year by year to provide a sinking fund which will in due course materially reduce even if it does not entirely extinguish the national indebtedness. In my opinion Japan can look forward to its financial future with equanimity. In regard to its financial past it has the satisfaction of thinking that heavy in one sense though its financial obligations be they have not at any rate been squandered for unworthy purposes.