Japan beat Russia — and the victory left the treasury empty

In 1904 the Empire of Japan attacked Russian forces in Manchuria and Korea to stop Russian expansion into what Japan saw as its sphere of influence. The Japanese army won at Port Arthur and Mukden; the navy destroyed the Russian Baltic Fleet at Tsushima in May 1905. Russia was left with no practical way to reinforce its Asian armies.

The victory was real but expensive. Japan had paid for the war with foreign borrowing, heavy taxation, and the full mobilisation of industry and shipping. By mid-1905 the navy was short of shells, the army was short of replacements, and the treasury could not finance another campaign.

The Treaty of Portsmouth, mediated by the United States, gave Japan southern Sakhalin, the Liaodong lease, and railway rights in Manchuria. It did not give Japan the cash indemnity that the public and many officials had expected. The government presented the treaty as a triumph; the public saw the missing indemnity as a betrayal.

Riots broke out in Tokyo's Hibiya district and spread across the country. The Katsura cabinet fell. Japan had become a great power, but it did so while carrying a debt load that shaped its diplomacy and armaments policy for the next generation.