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The way that the Yokohama Specie Bank challenged the established British banks in Asia before the First World War is examined in this chapter. The focus is on the finance of the cotton and silk trade, especially within Asia. 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. A branch in New York had the same effect for silk as that was a major Japanese export to the USA. Thus, the YSB was able to compete with both the British and US banks that operated in Asia before the First World War. However, what was crucial for the success of both operations was the ability of YSB to discount its bills of exchange in London, which it was able to do through its City branch and links to domestic British banks. The result was that even the finance of the silk trade between Japan and the USA switched from a dependence on US credits to London finance in the early 20th century.

This chapter provides a comparative analysis of Japanese colonial banks before World War II with particular emphasis on their roles as banks of issue in Taiwan, Korea and Northeast China. The chapter then charts how Japanese colonial banks built on the earlier British banking experience in China, and how it later elaborated it much further. Japanese colonial bank note issuance was to play an important role in underpinning the Japanese pre-war empire as a whole.

Of all the countries of Asia it was Japan that pioneered international banking as an outgrowth of the needs of the domestic economy. The international activity of Japanese banks was a product of that country’s remarkable economic growth from the late 19th century onwards. Beginning with the Yokohama Specie Bank this saw Japanese banks establish branches in major financial centres around the world. From that basis these banks increasingly challenged European banks in the finance of Asia’s regional and international trade and in investment operations. This challenge was greatly strengthened by the effects of the First World War which undermined both European banks and European financial centres to the advantage of the Japanese and the Americans. However, economic nationalism between the wars and then the effects of the Second World War and Japan’s defeat forced a wholesale retreat of Japanese banks. Nevertheless, despite these setbacks Japanese banks again expanded rapidly from the 1960s onwards as the Japanese economy grew rapidly.

The main aim of this chapter is to demonstrate how the implementation of an intra-branch exchange risk hedging strategy can be traced cross-sectionally, that is, by means of snapshots of banking practice at certain points in time. After documenting the Yokohama Specie Bank (YSB)’s early history, it is demonstrated how the bank went through different managerial phases. YSB development in China on a silver basis is explained as a natural consequence of hedging practice, in contrast to the tendency to treat the latter as an anomaly. At all times, the bank could not neglect the realities of the world’s monetary geography. Willingly or not, YSB’s cadre had to take into account the fact that the bank’s center of gravity would, almost inevitably, move towards Shanghai; YSB’s decentralized operating in the many industrial and commercial centers of Manchuria was the consequence of government policy, on the one hand, and the severely limited credit conditions within the regions, on the other.

This chapter discusses the international surge of Japanese credit creation during the war, when Japan emerged, briefly and “prematurely,” as one of the world's top three creditor countries. Tokyo financial groups lent to Britain and France, as well as to Russia and China. Simultaneously, Japanese central bankers began to build the institutional infrastructure of an international credit center. This initiative was relatively unsuccessful. It did, however, herald the beginning of a structural shift. The chapter also looks at two parastatal banks—the Yokohama Specie Bank and the Industrial Bank of Japan—which functioned as a designated foreign exchange bank and a long-term industrial-investment bank, and their key roles in the administration of Japan's capital imports and exports. They were established to realize national policy goals, to mobilize domestic funds, and to build Japan's standing in international finance.