For the next seven years, Allied powers occupied Japan. After Japan's military forces were demobilized and repatriated, the Occupation, led by General Douglas MacArthur of the U.S. army, turned to the problem of making Japan democratic with the hope that its people would never again be led to fight a war of aggression. To that end, in 1947 a new constitution was adopted with two key provisions: sovereignty was transferred from the emperor to the people, and Japan as a nation renounced war and the right to build a military force.
Under land reform, tenant farmers were given the land they worked and industrial workers were allowed to form trade unions. "Zaibatsu" or large business-combines which had been part of the military-industrial machine were partially dismantled. Democracy was popularized in the media and schools, and the "moral training" that had fostered extreme nationalism was abolished.
Most of the reforms made under the Occupation have been retained by Japan. The United States changed some of the more liberal provisions it had encouraged early in the Occupation as it grew more fearful of Communism in the Cold War. With American support, Japan rebuilt many of its wartime industries to supply U.S. forces in the Korean War and entered into a security treaty with the United States which established Japan in an important role in America's Asian defense strategy. In 1952, the U.S. Occupation of Japan ended and by 1955 the Japanese economy had regained its highest prewar production levels. A stable political system was also established with the conservative and pro-American Liberal Democratic Party's control of the government.
From the sixties through the mid-eighties domestic politics were stable; the Liberal Democratic Party maintained a solid majority in the Diet (parliament) and emphasized close relations with the United States. Japan also achieved record economic growth — averaging 10 percent a year until the seventies. Its economy grew from one less productive than Italy to the third largest in the world, behind only the United States and the Soviet Union. Growth was especially strong in heavy industry, such as steel, chemicals and machinery, and in advanced technology. Almost totally dependent on imports for food and energy, Japan began to face increasing protectionism abroad and serious pollution problems at home. Although Japan has brought pollution under control, trade frictions continued. As one of the most advanced post industrial societies in the world, the Japanese people enjoyed prosperity and the benefits of a thriving middle-class society.