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 2019, bilateral U.S.-Japan trade in goods and services surpassed $305 billion, as both exports and imports increased versus 2018. U.S. goods exports to Japan reached $74.4 billion, while services exports were $50.6 billion, for a total of $125 billion, up two percent from 2018. Top U.S. exports to Japan include civilian aircraft and related parts, industrial machines, natural gas, pharmaceuticals, medical devices, and travel and tourism. Imports of goods from Japan topped $143.5 billion, as services imports were about $37 billion, for a total of $180.5 billion, up one percent from last year. Top Japanese imports 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 $69.7 billion in goods (principally autos and related parts) and a trade surplus of $14.2 billion in services. (Note resources from USTR and the U.S. Census Bureau.)
As of 2019, Japan is the largest source of foreign direct investment (FDI) into the United States, pushing out the United Kingdom and Canada, with total stock of FDI at $619.3 billion, up 25.4 percent versus 2018. Japan’s FDI position in the U.S. on a historical cost basis has grown every year for the past ten years, from $238 billion in 2009. Direct investment in the United States by Japanese companies is predominantly in manufacturing, particularly 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 refer to the SelectUSA FDI Fact Sheet on Japan.)
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 $40,247 underpins its strength as a consumer market.
- Japan is highly dependent upon the import of natural resources. For example, it is the world’s largest net buyer of food products in the world. The United States is the leading supplier of its agricultural imports, as well as agricultural capital equipment and related technologies. Total U.S. food, agricultural, and fishery exports to Japan were worth more than $12 billion in 2019. Japan is the world’s largest importer of liquefied natural gas (LNG) and the third-largest coal importer.
- Japan’s rapidly aging population, which has begun to decrease overall, continues to send ripple effects through its society and economy, shaping present and future demand in economic spheres as disparate as robotics and pharmaceuticals, franchise and real estate (see below).
- 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 its effects on economic growth and government budget resources. The aging population shapes demand and opportunities in various segments:
- Medical devices and equipment
- Healthcare facilities and infrastructure, including in-home care
- Healthcare information technology
- Safety-related products and services
- Leisure and travel
- Educational services
- Home delivery services
- Financial services
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, 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: