Since 1854, when the Tokugawa shogunate first opened the country to Western commerce and influence (Bakumatsu), Japan has gone through two periods of economic development. When Tokugawa shogunate was overthrown and Meiji government was founded, Japanese Westernization began completely. The first term is during the Prewar Japan, the second term is Postwar Japan.

In Meiji period, leaders inaugurated a new Western-based education system for all young people, sent thousands of students to the United States and Europe, and hired more than 3,000 Westerners to teach modern science, mathematics, technology, and foreign languages in Japan (O-yatoi gaikokujin). The government also built railroads, improved roads, and inaugurated a land reform program to prepare the country for further development.

To promote industrialization, the government decided that, while it should help private business to allocate resources and to plan, the private sector was best equipped to stimulate economic growth. The greatest role of government was to help provide the economic conditions in which business could flourish. In short, government was to be the guide and business the producer. In the early Meiji period, the government built factories and shipyards that were sold to entrepreneurs at a fraction of their value. Many of these businesses grew rapidly into the larger conglomerates. Government emerged as chief promoter of private enterprise, enacting a series of probusiness policies.

The development of banking and reliance on bank funding have been at the centre of Japanese economic development at least since the Meiji era.

In the mid 1930s, the Japanese nominal wage rates were 10 times less than the one of the U.S (based on mid-1930s exchange rates), while the price level is estimated to have been about 44% the one of the U.S.

Comparison of GDP per capita between East-Asian Nations and the U.S. in 1935:

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