The Dawn of a New Era: Japan’s Transformation Begins

In the early years of the Meiji Restoration, Japan stood at a critical crossroads. The new government, having overthrown the Tokugawa shogunate, faced the monumental task of transforming a feudal society into a modern nation-state. The year 1870 found Japan grappling with fundamental questions of governance, finance, and national identity. At the heart of these deliberations stood visionary leaders who understood that Japan’s survival in an increasingly imperialistic world depended on rapid modernization and centralization of power.

The political landscape was dominated by figures from the powerful domains that had engineered the Restoration—particularly Satsuma, Chōshū, and Tosa. These men, though united in their desire to strengthen Japan, often disagreed on methods and priorities. The government operated under the Daijō-kan system, with key decisions made by an council of senior statesmen that included both court nobility and former samurai from the influential domains.

The Architect of Financial Modernization

In October 1870, Itō Hirobumi, then serving as Junior Vice Minister of Finance, proposed a bold initiative that would shape Japan’s economic future. Recognizing the inadequacy of Japan’s existing financial systems, he requested permission to travel to the United States to study Western financial institutions and practices. Itō understood that a modern financial system would be essential for funding the sweeping reforms the new government envisioned.

Itō’s proposal came at a pivotal moment. He had observed the political maneuvers surrounding one of the most significant reforms contemplated by the Meiji government: the abolition of the feudal domains. This radical restructuring of Japan’s political geography would eliminate the semi-autonomous domains that had characterized Japanese governance for centuries, replacing them with prefectures directly controlled by the central government.

The Political Chessboard: Abolishing the Domains

The movement to abolish the domains had been gaining momentum throughout 1870. Ōkubo Toshimichi, a statesman from Satsuma serving as Councilor, had been working diligently to build consensus for this revolutionary change. In September, he secured the support of Iwakura Tomomi, an influential court noble holding the position of Major Counselor. Soon after, he obtained approval from Sanjō Sanetomi, the Minister of the Right.

The financial implications of maintaining the domains had become increasingly apparent to government leaders. The central treasury struggled to meet its obligations while supporting the existing domain structure. Kido Takayoshi, a Councilor from Chōshū, had supported domain abolition since the return of domain registers to the emperor the previous year, seeing it as essential for creating a unified national government.

Successfully implementing this radical reform required two crucial elements: the presence in Tokyo of Saigō Takamori, the influential leader from Satsuma who had returned to Kagoshima, and continued solidarity among the powerful domains, particularly Satsuma and Chōshū. On October 14, the government dispatched Saigō’s brother, Saigō Jūdō, to Kagoshima to persuade the respected leader to return to the capital.

It was against this backdrop of political maneuvering that Itō made his proposal to study abroad. He envisioned using knowledge gained from American financial systems to transform the Ministry of Finance into the central pillar of government after domain abolition.

Military Preparations and Political Alignments

When Itō returned from America in May 1871, the framework for domain abolition was largely in place. By mid-June, approximately 8,000 soldiers from Satsuma, Chōshū, and Tosa had assembled in Tokyo to form the Imperial Guard. This military presence provided the government with the necessary force to implement its radical reforms without significant opposition.

The composition of government leadership reflected the delicate balance of power among the Restoration factions. Sanjō served as Minister of the Right, Iwakura as Major Counselor, while six former samurai—including Ōkubo, Kido, and Ōkuma Shigenobu—held positions as Councilors. Together, they formed the highest decision-making body under the Daijō-kan system.

Though Emperor Meiji had formally been restored to power, the eighteen-year-old monarch typically ratified decisions made by his ministers, involving himself primarily in court matters rather than day-to-day governance.

Financial Reforms and Political Tensions

On June 24, Itō departed for Osaka to oversee the Mint Bureau as Superintendent of New Currency. Before leaving, he submitted a proposal for organizational reform within the Ministry of Finance, hoping to position it as the central engine of modernization following domain abolition.

From late June to mid-July, final negotiations for domain abolition took place between Kido’s faction—which included Inoue Kaoru, Yamagata Aritomo, and Toriō Koyata—and the powerful Satsuma leaders including Saigō and Ōkubo. Itō, occupied with his duties in Osaka, watched these developments from a distance.

On July 14, the emperor issued the historic decree abolishing the domains and establishing prefectures. The following day, more than 200 former daimyō serving as domain governors were relieved of their positions. Thanks to the show of force provided by the Imperial Guard troops from Satsuma, Chōshū, and Tosa, this radical restructuring proceeded with remarkably little disruption.

Shifting Power Dynamics

The late July appointments revealed the new power structure: Sanjō as Prime Minister, Iwakura as Foreign Minister , with Kido, Saigō Takamori, Itagaki Taisuke, and Ōkuma serving as Councilors.

Initially, Ōkuma had served as Vice Minister of Finance while holding his Councilor position. But on June 27, Ōkubo Toshimichi assumed the position of Minister of Finance. On July 27, Inoue Kaoru took over as Vice Minister of Finance, replacing Ōkuma.

The appointment of Ōkubo, a powerful Satsuma leader, as Minister of Finance rather than Councilor was widely seen as a move to check the influence of Kido’s faction within the ministry—particularly Ōkuma, Itō, and Shibusawa Eiichi, who were known for advocating rapid modernization.

A Vision Frustrated

For Itō, watching his dream of domain abolition become reality brought great satisfaction. However, his vision of creating a Ministry of Finance capable of driving Japan’s modernization—informed by his American studies—faced determined opposition from the new minister, Ōkubo.

Itō grew increasingly frustrated as his reform proposals met resistance. The same day Ōkubo assumed leadership of the ministry, Itō’s ally Inoue was transferred from Vice Minister of Finance to Vice Minister of Civil Affairs.

Rumors spread through Tokyo government circles that Ōkuma might be forced to resign from his position as Vice Minister of Finance. Iwakura reportedly considered this possibility, though the efforts of Inoue and others eventually quashed the idea. Itō learned of these developments on July 13 from Yamada Akiyoshi, a former Chōshū samurai serving in the Ministry of Military Affairs.

In a letter to Inoue, Itō expressed his frustration, questioning how Ōkuma’s loyalty and capability could still be in doubt after four years of government service. He wrote that had Ōkuma remained in the Ministry of Finance, institutional reforms would have proceeded, and he himself would not have considered leaving his position. With reform prospects dimming, Itō even contemplated requesting transfer to the Mint Bureau—a position technically inferior to his current role as Vice Minister of Finance.

The Final Blow

Itō’s hopes were ultimately disappointed. Ōkuma left the Ministry of Finance to focus on his duties as Councilor. On July 27, 1871, Inoue Kaoru assumed the position of Vice Minister of Finance. Though Inoue was an ally and fellow member of Kido’s faction, he possessed neither Ōkuma’s reformist zeal nor his administrative capabilities.

On that same day, Itō was appointed to concurrently serve as Superintendent of Taxes—a move widely perceived as a demotion. Just a year earlier, the Ministry of Finance leadership had consisted of Ōkuma as Vice Minister, Itō as Junior Vice Minister, and Inoue as Senior Secretary. In January 1870, Inoue had been promoted to Junior Vice Minister, equal in rank to Itō. The ministry had effectively been led by Itō and Ōkuma. Now, Itō found himself subordinate to Inoue.

While Itō bore no personal animosity toward Inoue, he directed his anger toward Minister Ōkubo, whom he saw as obstructing necessary reforms.

The Bitter Aftermath

While stationed at the Osaka Mint, Itō received notice on July 27 of the ministerial reorganization. On August 2, he wrote letters to Councilor Ōkuma, Vice Minister Inoue, and Senior Secretary Shibusawa vigorously criticizing the reforms.

His correspondence revealed profound disappointment with what he perceived as a retreat from the modernization agenda. The man who had traveled to America to learn the principles of modern finance saw his vision for a powerful, centralized financial ministry being dismantled by political considerations and personal rivalries.

Itō’s frustration reflected broader tensions within the Meiji government between modernizers who sought rapid transformation based on Western models and more cautious figures who preferred incremental change that preserved certain traditional structures and power balances.

Legacy of the Financial Reform Struggle

The political and bureaucratic conflicts surrounding the Ministry of Finance reforms in 1871 foreshadowed ongoing tensions within Japan’s modernization project. Itō’s disappointment, though profound in the moment, proved temporary. He would go on to become one of Japan’s most influential statesmen, serving multiple terms as prime minister and playing a crucial role in drafting the Meiji Constitution.

The Ministry of Finance, despite the setbacks of 1871, eventually became the powerful economic engine Itō had envisioned, guiding Japan’s transformation into an industrial and military power. The institutional foundations laid during these early years—however imperfect—provided the framework for Japan’s remarkable economic development in subsequent decades.

The events of 1871 also revealed the persistent tension between domain-based factions within the Meiji government. The competition between Satsuma and Chōshū factions, manifested in the struggle between Ōkubo and Itō’s modernization agenda, would continue to influence Japanese politics throughout the Meiji period and beyond.

Perhaps most significantly, these events demonstrated that Japan’s transformation from feudal society to modern state would be neither smooth nor linear. It would proceed through fits and starts, advances and retreats, as competing visions of modernity contended for dominance within the new political establishment.

The story of Japan’s financial modernization in the early Meiji years remains relevant today as nations worldwide continue to grapple with similar challenges: how to build effective institutions, balance competing political interests, and navigate the complex process of economic development without losing sight of broader national goals. The frustrations experienced by visionaries like Itō Hirobumi remind us that meaningful reform is often a protracted struggle requiring persistence, flexibility, and strategic compromise.