RECENT TRENDS IN JAPAN-U.S.
ECONOMIC RELATIONS

Free market Forces Yield Balance of Trade Improvement

Q.

What about the Japan-U.S. trade? Does the imbalance persist?

A.

Since economies of the states and regions are closely interwoven one another in the present system of World Economy, it is not much of a use to emphasize bilateral trade imbalance without considering the overall balance. However, to answer your question, let us point out following facts and forecasts.

(1) There is a downward trend in Japan's trade surplus with the U.S. In 1995, for the first time in five years since 1990, Japan's trade surplus with the United States decreased by 17.2% on a year-on-year basis from the 1994 level of US$54.9 billion to US$45.5 billion. On a month-to-month comparison to the same month from the previous year, Japan's trade surplus with the U.S. has been decreasing for 11 consecutive months from March 1995 through January 1996.

This result reflected a steady expansion of Japan's imports of American manufactured products, concurrent with a slowdown in its overall export growth rate which was mainly brought about by a decline in its automobile and other product exports. In 1996, as well, Japanese exports to the United States are expected to further stagnate. It is because of the growing effect of export replacement, mainly through the expansion of Japanese companies' local production in North America.

Steady growth in Japan's imports from the United States is expected by many as well. Major private sector economic research institutes in Japan are projecting that the downward trend in Japan's trade surplus with the United States will continue in 1996.

(2) There is also a downward trend in the share of the U.S. trade deficit held by Japan. As exports of American products to Japan continue to grow steadily, the share of the American trade deficit accounted for by Japan will probably maintain a downward trend. Since recording a peak of 65.0% in 1991, this ratio has fallen every year. The yearly total for 1995 came down to 37.2%.