Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Japan is one of the most important trade and investment partners for the United States. In 2021, bilateral U.S.-Japan trade in goods and services was worth $280 billion. Both exports and imports increased versus 2020, as the Covid-19 pandemic restrictions eased. U.S. goods exports to Japan were about $75 billion, while services exports were approximately $38 billion, for a total of $112.2 billion, up 9.5 percent from 2020. (U.S. goods exports to Japan from January to August 2022 were $54 billion, up 11.4% versus the same period last year.) Top U.S. exports to Japan include natural gas liquids, pharmaceutical preparations, meat and poultry, industrial machines, medicinal equipment, civilian aircraft, engines and parts, and corn. Imports of goods from Japan were close to $135 billion, and services imports were about $33 billion, for a total of $167 billion, up 9.3 percent from the prior year. (U.S. goods imports from Japan were $98 billion in the period January-August 2022, an increase of 7% versus the same period last year.) Top U.S. imports from Japan are autos, auto parts, and electronics. Japan is the fourth-largest export market and trading partner for the United States, which has a trade deficit with Japan of about $61 billion in goods (principally autos and related parts) and a trade surplus of about $6 billion in services. (Information from the U.S. Census Bureau.)
As of 2021, Japan is the largest source of foreign direct investment (FDI) into the United States, with an FDI stock of $721 billion. Japan’s FDI position in the U.S. on a historical cost basis has grown every year for over a decade, from $301 billion in 2012. Direct investment in the United States by Japanese companies is predominantly in manufacturing, particularly of transportation equipment (e.g., autos). These investments support U.S. jobs (close to one million) and contribute to U.S. economic output and exports. Please see the SelectUSA FDI Fact Sheet on Japan and the SelectUSA Investor Guide.
There are several reasons for American firms to participate in the Japanese market. In addition to its size and wealth, Japanese business partners expose American companies to new technology, rigorous competition, and – in some cases – the opportunity to partner with Japanese firms in third markets.
Why Do Business with Japan?
Japan is the third largest economy in the world after the United States and China. It is the fourth largest importer of U.S. products after Canada, Mexico, and China. Japan is a key member of the international trade system with a market that respects the rule of law and provides strong protections for intellectual and real property rights.
Japan’s consumer economy is large, broad-based, and sophisticated. Per capita income of about $43,000 underpins its strength as a consumer market.
Japan is highly dependent upon the import of natural resources. Japan has, for example, been for decades the world’s largest importer of liquefied natural gas (LNG). It has also been the world’s largest net buyer of food products. The United States is Japan’s leading supplier of agricultural imports, as well as agricultural capital equipment and related technologies.
Japan’s rapidly aging and declining population continues to send ripple effects through its society and economy, shaping present and future demand in economic spheres as disparate as robotics and pharmaceuticals, franchising, and real estate.
Japan’s strategic alliance and deep economic integration with the United States presents opportunities in advanced sectors such as space, defense, and security. Japan is a leading importer of U.S. aerospace and defense equipment and, increasingly, an integrated co-developer. Related growth sectors include defense procurement, advanced manufacturing, and cyber security solutions.
Japan’s population is declining as it ages rapidly. The population may decrease by as much as one third by 2060, from 127 million to 87 million. The proportion of the population older than 65 will rise from 27% today to 40% by 2060. The Japanese Government and business community seek to offset the effects of this demographic decline on economic growth and government budget resources, but Japan’s aging and declining population will shape demand and opportunities throughout the economy.
U.S.-Japan Trade Agreement, U.S.-Japan Digital Trade Agreement
In October 2019, the United States and Japan signed the U.S.-Japan Trade Agreement and the U.S.-Japan Digital Trade Agreement, both of which entered into force on January 1, 2020. The U.S.-Japan Trade agreement eliminates or reduces tariffs on approximately $7.2 billion in U.S. agricultural exports and the U.S.-Japan Digital Trade Agreement includes high-standard provisions that ensure data can be transferred across borders without restrictions, guarantee consumer privacy protections, promote adherence to common principles for addressing cyber security challenges, support effective use of encryption technologies, and boost digital trade.
Trade statistics and economic indicators
Several organizations, both government and non-government related, keep up-to-date data on Japan’s economy and trade. A few of these are listed below:
Political & Economic Environment: State Department’s website for background on the country’s political environment.