Dollar, Dollar, Who Has the Dollar? -- Relationship between the Japanese and American Balance of Payments

Abstract

This paper focuses on the economic aspects of Japanese-United States relations within an international context. The emphasis on economic factors is deserved because for the past twenty years Japan's policymakers have identified the country's international role as being dominated by economic considerations. Postwar Japan thus far has chosen to play a relatively modest international role. This is because it seems to have had two main objectives: the creation and maintenance of prosperous economic growth domestically, and the development of international relationships which would serve to promote domestic economic prosperity. Judged by these rather modest aims, Japan has been extravagantly successful-arising like a phoenix from the ashes of World War II, resuming full sovereignty in 1952 but as a weak country in need of a patron in a hostile or at best indifferent world, to now once again being accepted as one of the world's major independent nations. At the end of this paper I would like to conjecture as to how we might broadly view Japan's future role in the world and what lines of development of that role would be of benefit to the United States as well. In providing an overview of U.S.-Japan economic relations, I take as my frame of reference a country's balance of payments, inasmuch as the balance of payments is a recording of all economic transactions among nations. I first discuss the nature of Japan's overall balance of payments, and ways in which Japan's international economic problems are reflected by its balance of payments position, and then I turn briefly to the United States balance of payments problem in its global setting. Following that I examine U.S.-Japan bilateral economic relations, as reflected in the totality of our economic transactions with each other. First, however, I should briefly review the components of a country's balance of payments. The balance of payments may be divided into current account and into capital account. The current account provides an estimate of the flows of commodities and services between a country and all other countries, while the capital account provides estimates of the flows of