The flow of capital between Britain and Japan during the years of the Anglo-Japanese Alliance went in both directions. Between 1916 and 1919 Britain raised a total of over ¥283.4 million (c. £28 million) in Japan in the form of treasury bills and exchequer bonds. All the money had been repaid by the start of 1921, and the loans played only a temporary role in the war finances of the British government. 1 For Japan their significance was greater. The Japan Yearbook for 1918 proudly announced that these loans meant that Japan was 'raised to the dignity of a creditor country'. 2 However, capital movements between the two countries during the first decades of the twentieth century were overwhelmingly from Britain to Japan; Britain was the creditor, and Japan the debtor. In a book published in 1930, Herbert Feis claimed that the provision of foreign capital was essential in helping Japan become a great power. 3 Targeted on government borrowing and infrastructural development, these funds arguably acted to maintain the country's strategic and developmental imperatives. However, despite the existence of the Alliance the flow of capital from Britain to Japan was largely limited to the decade before the First World War, and was a very small part of the overall flow of capital out of Britain in the early twentieth century.
Japan had strong advocates in Britain, and was perceived by many as a coming power. Her dominant position in Asia following the Russo-Japanese War and the significance of her affiliation to the gold standard were widely acknowledged, and Japanese borrowing in Britain could boast of strong political backing. However, British lending to Japan, and particularly direct and portfolio investment in the country, remained very small by comparison with the vast sums finding their way both to Empire territories such as India, and to non-Empire territories such as the countries of Latin America, as well as to Japan's defeated enemy, Russia. It is therefore appropriate to ask why the flow was not bigger than it was.
One reason for the limited nature of this flow may have been institutional. It is possible that legal institutions in Japan were of a kind that may have impeded the involvement of British business in the country, while Japan had to work hard to institute networks of contacts and identify appropriate organisations that could facilitate the flow of capital. It is