Together they account for over 30% of world domestic product (2012 estimate). This economic clout makes the United States and Japan powerful forces that influence each other's economies and those of other countries. Economic conditions in the United States and Japan also have a significant impact on the rest of the world. Furthermore, the U.S.-Japan bilateral economic relationship itself can influence economic conditions in other countries. The two countries remain very important economic partners, accounting for significant shares of each other's foreign trade and investment, even though their relative significance has declined. Nevertheless, the economic recoveries in both countries are expected to be fragile, especially in Japan. The second crisis was the March 11, 2011, earthquake, tsunami, and nuclear accidents in northeast Japan. U.S.-Japanese Trade in Goods and Services

The growth in U.S.-Japanese bilateral trade in goods and services has been slow if not stagnant over the past two decades, reflecting, at least in part, the anemic state of the Japanese economy. The value of portfolio and direct investments between the United States and Japan exceeds the value of trade in goods and services. Japanese investors are major private foreign holders of U.S. Treasury securities that finance the U.S. national debt, and their importance has soared over the last few years. For Japan the importance of the relationship has been rooted in the emergence of the United States as the world's largest economic power; Japan's dependence on the United States for national security, especially during the Cold War; the dependence of Japanese manufacturing industries—autos, consumer electronics, and others—on exports to the United States; and the reliance of reform-minded Japanese political leaders on U.S. pressure, gaiatsu , to press for economic reforms in a political system that strongly protects the status quo. For the United States, the significance of the economic relationship with Japan has been grounded in its reliance on Japan as a critical ally; the emergence of Japan in the post-World War II period as an economic power in East Asia and, until recently, the second-largest economy (now the third-largest economy) in the world; the advancing competition from Japanese manufacturers in industries, for example autos and steel and high tech industries, including semiconductors and computers, which employ large numbers of U.S. workers; the rising trade deficits with Japan; Japan's emergence as a major source of investment in the United States; and Japanese government policies that have protected vulnerable sectors and assisted exporters, often at the expense of U.S. competitors. For Japan, China has emerged both as a major economic competitor and partner in the region requiring more attention. Japan and the Trans-Pacific Partnership Agreement (TPP) and Its Other FTA Initiatives

The TPP is an evolving regional free trade agreement (FTA). Japan and the United States are major participants in those discussions. Prospects and Policy Options to Deepen Economic Ties

Although the relative significance of the U.S.-Japan economic relationship has been diminished somewhat with the rise of China and other emerging economic powers and Japan's stagnant economic performance, it remains important to the respective companies and the Asia-Pacific region as a whole. As Japan and the United States continue to manage their economic relationship, they have several options on how to deepen the relationship. On the other hand, failure to do so could indicate that the underlying problems are too fundamental to overcome and could set back the relationship. This option could help to promote stability in the bilateral relationship by containing political friction like that which erupted in the 1980s and 1990s. While the United States and Japan have achieved some successes, a number of issues seem to have lingered over the years, such as government regulatory practices. Managing the U.S.-Japan Economic Relationship—A Brief History

For the United States and Japan, managing their economic relationship has meant cooperating in areas of mutual agreement and addressing problems in a manner that meets the national interest of each country while maintaining the integrity of the alliance.
Japan and the United States are two major economic powers. Together they account for over 30% of world domestic product, for a significant portion of international trade in goods and services, and for a major portion of international investment. This economic clout makes the United States and Japan potentially powerful actors in the world economy. Economic conditions in the United States and Japan have a significant impact on the rest of the world. Furthermore, the U.S.-Japan bilateral economic relationship can influence economic conditions in other countries.
The U.S.-Japan economic relationship is strong and mutually advantageous. The two economies are highly integrated via trade in goods and services—they are large markets for each other's exports and important sources of imports. More importantly, Japan and the United States are closely connected via capital flows. Japan is a major foreign source of financing of the U.S. national debt and will likely remain so for the foreseeable future, as the mounting U.S. public debt needs to be financed and the stock of U.S. domestic savings remains insufficient to meet the investment needs. Japan is also a significant source of foreign private portfolio and direct investment in the United States, and the United States is the origin of much of the foreign investment in Japan.
The relative significance of Japan and the United States as each other's economic partner has diminished. This trend is due in part to the rise of China and other emerging economic powers. For example, China has overtaken Japan as the largest source of foreign financing of the U.S. national debt. Nevertheless, analyses of trade and other economic data suggest that the bilateral relationship remains important, and policy leaders from both countries face the challenge of how to manage it. The trend is also due to the mediocre performance of the Japanese economy over the last two decades, which was exacerbated by the global economic slowdown beginning in 2008, and other setbacks, including the tsunami, earthquake, and nuclear accidents that occurred in March 2011. Japan is still struggling to achieve sustained economic recovery.
However, during the last decade, U.S. and Japanese policy leaders seem to have made a deliberate effort to drastically reduce the friction that prevailed in the economic relationship during the 1970s, 1980s, and the first half of the 1990s. 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 Japan's continuing failure to resolve long-standing market access barriers to U.S. exports. Failure to resolve any of these outstanding issues could heighten friction between the two countries.
More generally, other issues regarding U.S.-Japan economic relations have emerged on the agenda of the 113th 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 discussion frameworks and agreements; or a free trade agreement such as the potential Trans-Pacific Partnership (TPP) agreement in which Japan has decided to participate. Japan's participation in the TPP has renewed concerns of some Members of Congress over a number of Japanese trade practices.