The process of modernization was closely monitored and heavily subsidized by the Meiji government, enhancing the power of the great zaibatsu firms such as Mitsui and Mitsubishi. Hand in hand, the zaibatsu and government guided the nation, borrowing technology from the West. Japan gradually took control of much of Asia's market for manufactured goods, beginning with textiles. The economic structure became very mercantilistic, importing raw materials and exporting finished products ? a reflection of Japan's relative scarcity of raw materials.

Economic reforms included a unified modern currency based on the yen, banking, commercial and tax laws, stock exchanges, and a communications network. Establishment of a modern institutional framework conducive to an advanced capitalist economy took time but was completed by the 1890s. By this time, the government had largely relinquished direct control of the modernization process, primarily for budgetary reasons. Many of the former daimyo, whose pensions had been paid in a lump sum, benefited greatly through investments they made in emerging industries.

The government was initially involved in economic modernization, providing a number of "model factories" to facilitate the transition to the modern period. After the first twenty years of the Meiji period, the industrial economy expanded rapidly until about 1920 with inputs of advanced Western technology and large private investments.

Japan emerged from the Tokugawa-Meiji transition as the first Asian industrialized nation. From the onset, the Meiji rulers embraced the concept of a market economy and adopted British and North American forms of free enterprise capitalism. Rapid growth and structural change characterized Japan's two periods of economic development after 1868. Initially, the economy grew only moderately and relied heavily on traditional Japanese agriculture to finance modern industrial infrastructure. By the time 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. By the late 1920s, manufacturing and mining contributed to 23% of GDP, compared with the 21% for all of agriculture. Transportation and communications developed to sustain heavy industrial development.

From 1894, 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. Japan's large military force was regarded as essential to the empire's defense and prosperity through obtaining natural resources, which the Japanese islands were lacking in.