Power transferred to the Japanese in the early 1900s when the Germans were pre-occupied with World War I in Europe. The Japanese, unlike the Germans, settled the islands and by the 1920s about two-thirds of the population consisted of ethnic Japanese. The Japanese used the islands to grow numerous cash crops, including sugarcane, as well as a location for fishing, which supplied Japan with food.
Unlike the Germans, the Japanese settled these islands and forever altered the culture of the people. These changes came in many forms, including in the realms of food, politics, infrastructure, and technology as new products were introduced to the people.
As World War II approached, the island of Yap and Truk lagoon became heavily fortified by the Japanese, but the Allied forces bypassed Yap as it wasn't strategic in their goals to get to Japan itself. However Truk lagoon was strategic so was destroyed in 1944, essentially shifting power in the islands to the United States and the Allies as the Japanese retreated. The battles and bombings in the region destroyed most of the roads and industries the Japanese had built. After the war the people were essentially living in poverty, but now with a destroyed country and surrounding seas.
After the war, in 1946, the United Nations (UN) put the islands in the hands of the United States to act as a trustee until the UN could determine the future of the islands. From this point until 1979 the Caroline Islands (the island chain that makes up the modern Federated States of Micronesia) remained under US protection as the infrastructure was re-constructed and other improvements were made, although the process moved very slowly.
Perhaps the greatest impact the United States made on these islands came in their focus to encourage a free market economy. This goal, to make the islands self-sufficient, encouraged entrepreneurship, education, and trade among the people and by the time the country gained independence they had many of these skills, but more importantly the mindset to succeed economically. This changed their culture in numerous ways, especially in the form of shifting complete trust to a local leader to a belief in competition and economic self-determination.
In 1979 the United States granted the Federated States of Micronesia independence and since that time the political scene has been fairly peaceful and quiet. The greatest political splashes have come with the United States. The two nations work together in a free association, which means the United States is in control of the Federated States of Micronesia's defense. Beyond this agreement, the United States, and other foreign countries, have allowed the country to grow in their own direction, which they have done quite successfully.