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Friday, April 1, 2011

Japan-U.S. Relations: Issues for Congress

Emma Chanlett-Avery, Coordinator
Specialist in Asian Affairs

William H. Cooper
Specialist in International Trade and Finance

Mark E. Manyin
Specialist in Asian Affairs

The post-World War II U.S.-Japan alliance has long been an anchor of the U.S. security role in East Asia. The alliance facilitates the forward deployment of about 36,000 U.S. troops and other U.S. military assets in the Asia-Pacific, thereby undergirding U.S. national security strategy in the region. For Japan, the alliance and the U.S. nuclear umbrella provide maneuvering room in dealing with its neighbors, particularly China and North Korea.

U.S.-Japan relations have been adjusting to the Democratic Party of Japan’s (DPJ) landslide victory in the August 30, 2009, elections for the Lower House of Japan’s legislature. The DPJ’s victory appears to mark the end of an era in Japan; it was the first time Japan’s Liberal Democratic Party (LDP) was voted out of office. The LDP had ruled Japan virtually uninterrupted since 1955. Since the resignation of the DPJ’s first prime minister, Yukio Hatoyama, in June 2010, bilateral relations have been smoother under the leadership of Naoto Kan. Although in the past some members of the DPJ have questioned and/or voted against several features of the alliance, the party appears to have shifted its strategic thinking after a series of provocations from North Korea and indications of growing assertiveness from the Chinese military in disputed waters in 2010.

After the DPJ victory, bilateral tensions arose over the 2006 agreement to relocate the controversial Futenma Marine Air Station to a less densely populated location on Okinawa. The move is to be the first part of a planned realignment of U.S. forces in Asia, designed in part to reduce the footprint of U.S. forces on Okinawa by redeploying 8,000 U.S. Marines and their dependents to new facilities in Guam. After months of indecision and mixed messages from Tokyo, the Hatoyama government agreed to honor the original agreement, much to the dismay of the many Okinawans opposed to the base. Kan has voiced his intention to honor the agreement, although many concerns remain about its implementation.

Japan is one of the United States’ most important economic partners. Outside of North America, it is the United States’ second-largest export market and second-largest source of imports. Japanese firms are the United States’ second-largest source of foreign direct investment, and Japanese investors are the second-largest foreign holders of U.S. treasuries, helping to finance the U.S. deficit and reduce upward pressure on U.S. interest rates. Bilateral trade friction has decreased in recent years, partly because U.S. concern about the trade deficit with Japan has been replaced by concern about a much larger deficit with China. One exception was U.S. criticism over Japan’s decision in 2003 to ban imports of U.S. beef, which have since resumed, but on a limited basis.

However, the economic problems in Japan and the United States associated with the credit crisis and the related economic recession will likely dominate the bilateral economic agenda for the foreseeable future. Japan has been hit particularly hard by the financial crisis and subsequent recession. Japan’s gross domestic product (GDP) declined 1.2% in 2008 and 5.3% in 2009 and is forecast to grow 2.9% in 2010. At the same time, the United States is showing signs of recovery. The value of the yen has appreciated and has hit 15-year highs in terms of the U.S. dollar, which could adversely affect Japanese exports to the United States and other countries, contributing to the downturn in Japanese economic growth.

The devastating earthquake and tsunami that struck Japan on March 11, 2011, is certain to have wide-ranging implications for Japan, the region, and the U.S. relationship. The disaster is outlined briefly at the start of this report.

Date of Report: March 24, 2011
Number of Pages: 27
Order Number: RL33436
Price: $29.95

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