Japan emerged from the Tokugawa-Meiji transition as the first Asian industrialized nation. Domestic commercial activities and limited foreign trade had met the demands for material culture in the Tokugawa period, but the modernized Meiji era had radically different requirements. From the onset, the Meiji rulers embraced the concept of a market economy and adopted British and North American forms of free enterprise capitalism. The private sector-- in a nation blessed with an abundance of aggressive entrepreneurs-- welcomed such change.
Economic reforms included a unified modern currency based on the yen, banking, commercial and tax laws, stock exchanges, and a communications network. Establishment of a modern institutional framework conducive to an advanced capitalist economy took time but was completed by the 1890s. By this time, the government had largely relinquished direct control of the modernization process, primarily for budgetary reasons. Many of the former daimyo, whose pensions had been paid in a lump sum, benefited greatly through investments they made in emerging industries. Those who had been informally involved in foreign trade before the Meiji Restoration also flourished. Oldbakufu-serving firms that clung to their traditional ways failed in the new business environment.
The government was initially involved in economic modernization, providing a number of "model factories" to facilitate the transition to the modern period. After the first twenty years of the Meiji period, the industrial economy expanded rapidly until about 1920 with inputs of advanced Western technology and large private investments. Stimulated by wars and through cautious economic planning, Japan emerged from World War I as a major industrial nation.