Before World War II, Japan built an extensive empire that included Taiwan, Korea, Manchuria, and parts of northern China. The Japanese regarded this sphere of influence as a political and economic necessity, preventing foreign states from strangling Japan by blocking its access to raw materials and crucial sea-lanes, as Japan possessed very few natural and mining resources of it own, although it imported large amounts of coal from Chosen, Manchukuo, and some regions of occupied China. Japan's large military force was regarded as essential to the empire's defense.

Rapid growth and structural change characterized Japan's two periods of economic development since 1868. In the first period, the economy grew only moderately at first and relied heavily on traditional agriculture to finance modern industrial infrastructure. When the Russo-Japanese War began in 1904, 65% of employment and 38% of the gross domestic product (GDP) was still based on agriculture but modern industry had begun to expand substantially. During World War I, Japan used the absence of the war-torn European competitors on the world market to advance its economy, generating a trade surplus for the first time since the isolation in the Edo period. By the late 1920s, manufacturing and mining contributed 23% of GDP, compared with 21% for all of agriculture. Transportation and communications had developed to sustain heavy industrial development.

In the 1930s, the Japanese economy suffered less from the Great Depression than most industrialized nations, expanding at the rapid rate of 5% of GDP per year. Manufacturing and mining came to account for more than 30% of GDP, more than twice the value for the agricultural sector. Most industrial growth, however, was geared toward expanding the nation's military power.

Beginning in 1937 with significant land seizures in China, and to a much greater extent after 1941, when annexations and invasions across Southeast Asia and the Pacific created the Greater East Asia Co-Prosperity Sphere, the Japanese government sought to acquire and develop critical natural resources in order to secure economic independence. Among the natural resources Japan seized and developed were coal in China (where production rose substantially under Japanese control, from 15 million metric tonnes in 1936 to 58 million metric tonnes in 1942), sugarcane in the Philippines, petroleum from the Dutch East Indies and Burma, and tin and bauxite from the Dutch East Indies and Malaya. Japan also purchased the rice production of Siam, Burma, and Cochinchina.

During the early stages of Japan's expansion, the Japanese economy expanded considerably. Japanese iron production rose from 3,355,000 tonnes in 1937 to 6,148,000 tonnes in 1943. Steel production rose from 6,442,000 tonnes to 8,838,000 tonnes over the same time period. In 1941 Japanese aircraft industries had capacity to manufacture 10,000 aircraft per year. From 1941 to September 1944 defence production (including airplanes and vessels) rose by 94%. Much of this economic expansion benefitted the "zaibatsu", large industrial conglomerates.

Over the course of the Pacific War, the economies of Japan and its occupied territories all suffered severely. Inflation was rampant; prices in Japan in 1944 were 3.25 times higher than in 1936. Japanese heavy industry, forced to devote nearly all its production to meeting military needs, was unable to meet the commercial requirements of Japan (which had previously relied on trade with Western countries for their manufactured goods). Local industries were unable to produce at high enough levels to avoid severe shortfalls. Furthermore, maritime trade, upon which the Empire depended greatly, was sharply curtailed by damage to the Japanese merchant fleet over the course of the war. From a fleet of 6,000,000 tonnes of shipping in 1941, Japan was reduced to one of 2,000,000 tonnes by 1944.

By the end of the war, what remained of the Japanese Empire was wracked by shortages, inflation, and currency devaluation. Transport was nearly impossible, and industrial production in Japan's shattered cities ground to a halt. The destruction wrought by the war eventually brought the Japanese economy to a virtual standstill.

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