U.S.-Japan Economic Relations: Significance, Prospects, and Policy Options [February 14, 2012]   [open pdf - 326KB]

"The 'relative' significance of Japan and the United States as each other's economic partner has diminished with the rise of China as an economic power. For example, China has overtaken Japan and is the largest source of foreign financing of the U.S. national debt. In addition, U.S. economic ties with Canada, Mexico, and China have deepened, further eroding the direct relevance of Japan. Nevertheless, analyses of trade and other economic data suggest that the bilateral relationship remains important, and policy leaders of both countries face the challenge of how to manage it. During the last decade policy leaders seem to have made a deliberate effort to drastically reduce the friction that prevailed in the economic relationship. On the one hand, this calmer environment has stabilized the bilateral relationship and permitted the two countries to focus their attention on other issues of mutual interest, such as national security. On the other hand, as some have argued, the friendlier environment masks serious problems that require more attention, such as continuing Japanese failure to resolve long-standing market access barriers to U.S. exports. Failure to resolve any of these outstanding issues could cause heightened friction between the two countries. More generally, other issues regarding U.S.-Japan economic relations may emerge on the agenda of the 112th Congress. U.S. and Japanese leaders have several options on how to manage their relationship, including stronger reliance on the World Trade Organization; special bilateral negotiating frameworks and agreements; or a free trade agreement. On November 11, 2011, Prime Minister Noda announced at a press conference that he decided, after many consultations with potentially affected parties, that '[Japan would] enter into consultations toward participating in the TPP [Trans-Pacific Partnership] negotiations with the countries concerned on the occasion of the [November 12-13, 2011] APEC [Asia-Pacific Economic Cooperation] Economic Leaders meeting in Honolulu, Hawaii.' Japan's participation in the TPP will likely be the focal point of U.S.-Japan economic discussion for the foreseeable future."

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CRS Report for Congress, RL32649
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