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TheShōwa Financial Crisis (昭和金融恐慌,Shōwa Kin'yū Kyōkō) was afinancial panic in 1927, during the first year of the reign of EmperorHirohito of Japan, and was a foretaste of theGreat Depression. It brought down the government ofPrime MinisterWakatsuki Reijirō and led to the domination of thezaibatsu over the Japanesebanking industry.
The Shōwa Financial Crisis occurred after the post–World War I business boom in Japan. Many companies invested heavily in increased production capacity in what proved to be aneconomic bubble. The post-1920economic slowdown and theGreat Kantō earthquake of 1923 caused aneconomic depression, which led to the failures of many businesses. The government intervened through theBank of Japan by issuing discounted "earthquakebonds" to overextended banks. In January 1927, when the government proposed to redeem the bonds, rumor spread that the banks holding these bonds would go bankrupt. In the ensuingbank run, 37 banks throughout Japan (including theBank of Taiwan) and the second-tierzaibatsuSuzuki Shoten went under.[1] Prime MinisterWakatsuki Reijirō attempted to have an emergency decree issued to allow the Bank of Japan to extend emergency loans to save these banks, but his request was denied by thePrivy Council, and he was forced to resign.
Wakatsuki was succeeded by Prime MinisterTanaka Giichi, who managed to control the situation with a three-weekbank holiday and the issuance of emergency loans; however, as a result of the collapse of many smaller banks, the large financial branches of the five greatzaibatsu houses dominated Japanese finances until the end ofWorld War II.