Analysis of the Formation Process of the 15-Month Budget in the Late 1970s: Focusing on the Relationship Between Gaiatsu and Treasury Control

Abstract

  Treasury control over maintaining fiscal discipline is considered to have collapsed in the 1970s after it ran an enormous budget deficit. This paper analyzes the process of organizing the 15-month budget in the late 1970s and shows that the budget deficit occurred despite the functioning of treasury controls. Until the second supplementary budget for fiscal year 1977, which constituted a 15-month budget, the budget was prepared under the rule of keeping the dependence on public debt within 30 percent. However, the Japanese government had to adopt a policy of expanding domestic demand in the face of a strong yen. To manage this dilemma, Takeo Fukuda sent a secret letter to the United States. On this basis, hard-liners in the US government took the lead in foreign policy and exerted “foreign pressure” (gaiatsu) on Japan. As a result, Fukuda was able to implement a budget that broke through treasury control. Meanwhile, the Ministry of Finance turned to “reversibility” to consolidate its control; it then expanded public works and introduced a fifty-fifty rule. However, the “reversible” policies remained and contributed to the budget deficits in later years.