Recovery and the Market of the Masses

In the previous episode, we saw how Wall Street collapsed in 1929 and how the Great Depression swallowed up people’s lives. Out of that reckoning, America created the Securities and Exchange Commission (SEC) and ran a new backbone of rules through its market. But the story of destruction and rebirth was being repeated in another country across the sea.

When the Second World War ended, Japan’s cities were burnt-out ruins. The market, too, had stopped. Under the wartime regime the exchange had been placed under state control, and with defeat its function was left hanging in the air. How was a market to be raised again from the ashes? Postwar Japan would spend more than a decade answering that question. And that answer was also a path that turned stocks from the privilege of a few into something ordinary people could reach.

The Exchange That Reopened From the Ashes

After the war, reopening Japan’s securities market did not come easily.

Immediately after defeat, the authorities aimed for an early reopening of the market, but the GHQ (General Headquarters of the Allied occupation), which governed occupied Japan, indicated in September 1945 that it would not permit the exchange to reopen for the time being. It is thought to have been a judgment to first bring under control a market that could become a breeding ground for speculation. The Japan Securities Exchange that had continued since before the war was eventually dissolved, and the market spent several years in suspension.

The turning point was the enactment of the Securities and Exchange Act in 1948. Incorporating the American-style philosophy of investor protection, this law laid the foundation of the postwar securities business. Then, in April 1949, the Tokyo Stock Exchange was established as a member-based organization, and after a memorandum with the GHQ, trading resumed on May 16 of that year.

The reopened market became part of the engine of postwar recovery. For companies to recover, renew their equipment, and expand their businesses, enormous funds were needed. Beyond borrowing from banks, the mechanism of issuing shares to broadly invite investment began to move once more as the bloodstream of society. The market regained its role not merely as a venue for speculation, but as a device for gathering the funds to rebuild the nation.

Investment Trusts — The Invention That Bundles Small Sums

Even so, stock investment was still the province of those with substantial funds and knowledge. Buying even a single issue was costly, and discerning which company would grow was difficult. For ordinary office workers and homemakers to leap suddenly into the world of individual stocks was still a distant prospect.

What played a major role here was the investment trust. A little money is gathered from many people, professionals invest it collectively in stocks and bonds, and the results are shared among the investors — with this mechanism, even a small stake could take part in a diversified investment. The idea of sharing risk, which stood at the starting point of this series, blossomed in postwar Japan in the form of ‘mass participation.’

In the Showa 30s — that is, from the late 1950s into the 1960s — stock investment trusts gained popularity against the backdrop of a strong economy. The gathered funds bought stocks, which pushed prices up, and the risen prices drew still more money into the trusts — such a cycle is said to have arisen. In 1961, on the initiative of firms such as Nikko Securities, bond investment trusts were put on sale for the general public, and the total balance of trusts is said to have surpassed one trillion yen.

People who had previously had no connection to stocks began to visit the securities firms on street corners. They put part of their salary into trusts and waited for the dream of dividends. The market broadened its base from a salon of a limited class of the wealthy into the wider society.

The Elation of Mass Participation, and Its Price

This mass participation was inseparably bound up with the tailwind of the era of rapid economic growth.

From 1955 onward, Japan is said to have expanded its economy at an annual average of more than ten percent. New factories were built, home appliances entered every household, and people’s lives grew visibly richer. In that story of growth, the stock market was deeply involved as a source of funds and as a vessel for people’s hopes. Investment spreading to ordinary people — that was one bright facet of what postwar Japan had gained.

But a market that keeps rising runs out of breath somewhere. This too is a human story this series has depicted many times.

The securities recession showed that the wider the market’s base became, the more its tremors reached into the lives of many people. The waves of the market, once confined to the gains and losses of a handful of speculators, now shook the savings of ordinary investors. For the market to become ‘something for everyone’ meant that not only its light but its shadow, too, became ‘everyone’s.’

Even so, after the emergency support of the Bank of Japan special loans, the market recovered. Yamaichi Securities achieved reconstruction at that time, and the Japanese economy continued to grow thereafter. The postwar securities market put down roots within society, passing through three stages: reopening, mass participation, and the first crisis.

This chapter, which began from the ashes, showed us the market rebuilding the nation and dissolving into people’s lives. But for the market to spread also means it does not stay within national borders. In the coming era, the markets of each country would loosen their regulations, link up through electronic lines, and transform into a single vast apparatus. No one at the time yet knew that this wave of deregulation would in time summon a new kind of storm capable of collapsing stock prices across the whole world in a single day.