To recognise how deep trade ties between India and Japan go, all you need is a glance at newspapers from the early decades of the 20th century. Back then, there was a regular two-way flow of trade and people between the countries. Front pages of newspapers would carry the schedule of steamships from Japan that took their fair share of Indian passengers to Japan’s new free ports such as Nagasaki, Kanagawa, Okinawa and Yokohama. On their journey to India these ships ferried a large number of Japanese looking to capitalise on the growing trade between their country and British India.
The same newspapers that listed steamship arrivals and departures also had regular updates on the banks operating in Bombay. In October 1920, there were two Japanese banks with branches in India’s financial capital – Sumitomo Bank, whose branch in Churchgate was managed by J Sato, and Yokohama Specie Bank, or YSB, which had a branch in Hornby Road (now Dadabhai Naoroji Road) and listed N Otsuka as its manager. Unlike its fellow Japanese bank, YSB had a branch in Calcutta as well.
The newspaper listings of banks mentioned, among other details, the subscribed and paid-up capital of the banks as well as their reserve funds.
In 1920, YSB offered an interest rate of 2% per annum for current accounts that had a daily balance of between Rs 1,000 and Rs 1 lakh. The newspaper listings said the terms for fixed deposits for a period of a year or longer could be ascertained on application. “Every description of banking exchange business transacted,” a listing in The Times of India said. The Japanese bank, which opened as an agency in Bombay in 1894, was a proper branch, providing a full range of services by the 1920s. But its main customer base was neither wealthy Indians nor British citizens residing in the country. Its primary purpose in the country was to finance the booming two-way trade in ginned cotton and textiles between India and Japan.
Although Japan and India had cultural and spiritual links that date back to at least the 8th century CE, the former remained a feudal and isolated country until the Meiji era, which began in 1868. It was during the Meiji era that Japan underwent rapid modernisation, becoming industrialised and opening up to foreign trade.
The country’s slow integration with the global economy began with the import of cotton and woollen products from Europe along with the export of tea and silk to the West. Japan’s growing external trade brought the need for it to enter the international banking system. As contacts with India re-established in the 1870s, British banks in India were among the first to help facilitate Japanese trade with the rest of the world.
In 1871, Japan adopted the gold standard and pegged the yen to gold. For trade in East Asia, it used silver coins. In 1880, YSB was established with partial support from the Japanese government to manage the country’s foreign exchange operations. Seven years later, it was allowed to open branches abroad and became an important player in Japan’s growing foreign trade.
YSB established an agency in Shanghai in 1893, which was tasked with collecting yen-denominated bills that were drawn for commodities exported from China to Japan. The bills were sent to Japan and payable there. The following year, it set up agencies in Calcutta and Bombay, both of which were converted to branches later.
China was the main supplier of raw cotton to Japan at the beginning of the Meiji era, but within a few decades India took over the role. By the 1890s, when YSB opened its agencies in India, there was a large demand for Indian ginned cotton in Japan. The process of ginning involves putting picked cotton in a gin (cotton engine), which separates cotton fibres from their seeds and enables greater productivity than separating cotton manually.
At that time, they were “insufficient institutional infrastructures for Japanese trading companies to raise funds for purchasing raw cotton in India or to write the requisite money orders,” Japanese scholar Takeshi Nishimura wrote in a chapter in the book The Origins of International Banking in Asia: The Nineteenth and Twentieth Centuries. “Such dependence on foreign trading companies and merchants, and on foreign exchange banks such as HSBC and Chartered Bank, was common until the establishment of the capital and monetary infrastructure needed to support Japanese trading companies and merchants.”
Until the beginning of the 20th century, there was a heavy trade imbalance between Japan and India that favoured the latter. This resulted in a one-sided balance of foreign exchange for the bank. “YSB set up a fund for the exchange (Rs 5,00,000) at the Bombay agency,” Nishimura wrote. “Consequently, most Japanese trading companies switched foreign transactions to YSB to raise money for purchasing raw cotton rapidly.”
Japanese buyers used to come to Bombay and then travel to the interiors of what is now Maharashtra and Gujarat to procure ginned cotton. At that time, the only mode of exchange was silver rupees issued by the Indian government. “However, when the Japanese staff assigned to the Bombay branch of a Japanese trade company went up-country to buy cotton, the large amount of silver rupees required was too heavy for them to take to the cotton producing areas,” Nishimura wrote. “Thus, the methods of purchasing raw cotton in Bombay differed between the cases where the Japanese staff went directly to the cotton-producing areas and those where the trading companies commissioned foreign intermediaries with close connections to local cotton merchants.”
When Japanese buyers went to rural areas, they would buy kapas (unginned cotton) from local merchants and then hire local workers to gin the cotton and transport it to Bombay, according to Nishimura. The buyers would pay the cotton growers and ginners using a document similar to a cheque issued by moneylenders. These cheque-like documents could be encashed for silver rupees. The moneylenders would then be reimbursed with drafts from YSB. Such a financial arrangement functioned almost flawlessly.
The trade imbalance between the countries reduced when textiles manufactured in Japan were exported to India. Japanese clothes were competitively priced and exported to many of the same markets that British textiles reached, leading to a bitter price and trade war. “This competition reached its acme in the Indian cotton textile market, where not only did the rapidly rising textile industry of Japan come to grips with the steadily-declining British textile industry, but both of these came in direct and vigorous competition with the newly protected and fast expanding Indian textile industry,” Fredie A Mehta wrote in the February 1957 edition of the Review of Economics and Statistics, published by the MIT Press. “Obviously the competition was not centred around price considerations alone; and a variety of factors ranging from nationalism to bilateralism, from marked differences in tariffs to sharp differences in quality of the competing products, were clearly in active operation.”
YSB financed the export of Japanese textiles to India and played the role of key intermediary between Indian buyers in Bombay and Japanese exporters. “By establishing a branch in Bombay, YSB was able to create a two-way financial relationship between Japan and India involving flows of raw cotton and cotton textiles,” Nishimura wrote.
Decline after WWII
By the 1940s, YSB had become one of the largest exchange banks in the world and had an international network that extended to over 40 cities across five continents, such as Sydney, Manila, Vladivostok, Honolulu, Buenos Aires, London, Hamburg, Rio de Janeiro and San Francisco.
The bank, however, developed a notorious reputation as it was the paymaster for the Imperial Japanese Army, which committed atrocities and war crimes in China and other parts of Asia during the Second World War. Indeed, it largely financed the Japanese war effort. After Japan’s surrender at the end of the war, YSB was merged with the Bank of Tokyo, which was later merged with other banks to form the MUFG Bank, one of Japan’s megabanks.
The British authorities seized YSB’s assets in India during the war. The bank restarted operations in Bombay as Bank of Tokyo in 1953. In post-war Japan, Bombay lost its prominence as a major trading partner. The war put an end to the once-thriving Japanese business community in the city, and the age of air travel made the steamship services from Japan to Bombay redundant.
Ajay Kamalakaran is a writer, primarily based in Mumbai. He is a Kalpalata Fellow for History & Heritage Writings for 2022