Matsukata Masayoshi

Matsukata Masayoshi

Matsukata Masayoshi's financial innovations stemmed from a previous decade of military and industrial reform. To pay for new Meiji institutions such as state-mandated elementary education beginning in 1872, Japan imposed a tax on land that had to be paid with currency instead of the rice harvest.[1] In fact, the tax on land accounted for 80 percent of government revenue in the 1870s and early 1880s.[2] This tax placed a new financial burden on landowners; the difference between squalor and survival was just a single bad harvest away.

However the tax alone was not enough to pay for putting down the expensive Satsuma Rebellion, so the Meiji government began printing large amounts of currency.[3] The result was massive inflation that only made the deficit worse. In an attempt to combat the deficit, Finance Minister Matsukata Masayoshi instituted numerous fiscal reforms. Matsukata recognized the benefits of privatization and sold off several unproductive government holdings. He also cut spending and perhaps most importantly, returned Japan to a silver-backed currency. A silver backed currency meant that every banknote could theoretically be exchanged for silver. In just 18 months, Matsukata deflated the national money supply by 14 percent. This in turn caused agricultural land prices to plummet by 50 percent.[4] 

The short-term impact of Matsukata Deflation was catastrophic for landowners. Because land prices fell, landowners were forced to take out loans from wealthy merchants. When a large portion of these landowners defaulted, large tracts of land were suddenly consolidated by a merchant elite and a tenancy system arose. But without this deflation, Japan’s economy would have collapsed. Had Matsukata reacted by borrowing from foreign lenders, Japan would have initiated a system of foreign-reliance that would have essentially transformed it into a Pseudo-China, reliant on foreign trade with no say in its future. Thus Matsukata’s active monetary policies, while costly, marked a turning point in Japanese history that led to a more modern and independent fiscal-state.


[1] Nathan Sussman and Yishay Yafeh, “Institutions, Reforms, and Country Risk: Lessons from Japanese Government Debt in the Meiji Era” Journal of Economy History, 60:2 (Jun., 2000), 445.

[2] Andrew Gordon, A Modern History of Japan: From Tokugawa Times to the Present Oxford University Press (New York, 2014), 94.

[3] Sussman and Yafeh, “Institutions, Reforms”, 445.

[4] Gordon,  A Modern History, 95.

Matsukata Masayoshi