Japan and the United States are two of the world's largest economies, accounting for nearly 40% of the world gross domestic product (GDP). The United States is the world's largest economy as measured by GDP, while Japan is the world's third largest economy.

TUTORIAL: Index Investing

U.S. economic ties with Japan are very strong, and events impacting the Japanese economy can cause noticeable changes to the U.S. economy. (Everyone's talking about globalization, but what is it and why do some oppose it? To learn more, check out What Is International Trade?)

Trade with Japan
Japan is one of the largest trading partners with the United States. Japan buys 16.8% of the exports from the U.S. and accounts for 11.1% of U.S. imports according to 2006 figures reported by the Congressional Research Service. Although today's figures would be slightly different, their overall magnitude of importance is similar.

The U.S. imports three main categories of goods from Japan: automobiles, computers and machinery. The first category is by far the most important, with approximately 75% of U.S. imports being related to automobiles and automotive parts. U.S. exports to Japan are much more diverse, ranging from computers to agricultural products.

Corporate Ties
Many major Japanese companies are also major players in the U.S. economy. Sony, Nintendo, Honda, Toyota and Nissan, among others, are all household names in America. It is impossible to account for all of the ways in which the private sectors of the U.S. and Japan are interconnected. As noted above, however, one of the most prominent economic ties is from Japanese automakers. For example, recent estimates suggest that it was the source of employment for almost 152,000 U.S. private sector workers, and that even more U.S. jobs were created by Honda dealerships and Honda-related retail operations.

Together Toyota, Nissan and Honda operate about 30 auto factories in North America, according to figures compiled by CNN's "This Just In" blog.

On April 8, Honda announced that the earthquake had affected some of its suppliers' plants, and that the supply disruptions were expected to cause temporary decreases in North American output through at least mid to late April. Similar disruptions were anticipated by Nissan.

U.S. Debt Concerns
Japan is the second largest foreign holder of U.S. debt. According to the U.S. Treasury, Japan held $885.9 billion in U.S. debt in January 2011, nearly 20% of the total held by foreigners. This was second only to China which held $1.1 trillion in U.S. debt, approximately 26% of the total held by foreigners.

Following the disaster in Japan, speculation arose that economic disruptions in Japan could increase the cost of debt for the United States. Following the tsunami, Japanese efforts to rebuild could potentially freeze the funds which were intended to continue purchasing US treasuries. As a result, the demand for American paper would decrease and the cost of borrowing would rise.

The interest on the U.S. $14.2 trillion debt is one of the largest federal government expenditures. Rising interest costs could significantly increase that percentage. A 2010 report issued by the U.S. Congressional Budget Office reported that rising interest costs might force reductions in spending on other government programs and hamper the ability to use fiscal policy to stimulate the economy during downturns. (Find out why this particular piece of national financing gets so much attention from the media and investors. Check out Breaking Down The U.S. Budget Deficit.)

The Bottom Line
Japan is an important U.S. economic partner. If long-term economic disruptions arise in Japan, they can be expected to have noticeable effects on the U.S. economy through a variety of avenues.

Related Articles
  1. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  2. Trading Strategies

    How to Trade In a Flat Market

    Reduce position size by 50% to 75% in a flat market.
  3. Markets

    Will Paris Attacks Undo the European Union Dream?

    Last Friday's attacks in Paris are transforming the migrant crisis into an EU security threat, which could undermine the European Union dream.
  4. Markets

    What Slow Global Growth Means for Portfolios

    While U.S. growth remains relatively resilient, global growth continues to slip.
  5. Economics

    4 Countries in Recession and Crisis Since 2008

    See which major world economies haven't recovered from the global recession in the early 21st century, including a long-stagnant industrial power in Asia.
  6. Investing Basics

    General Agreement on Tariffs and Trade (GATT)

    The General Agreement on Tariffs and Trade was a treaty created after World War II that regulated world trade in an effort to aide economic recovery.
  7. Economics

    What is Dumping?

    Dumping refers to exporting a good at a lower price than the price charged for the good at home.
  8. Wealth Management

    How To Open And Access An Offshore Bank Account

    Opening an offshore bank account does not require a high level of financial sophistication. It’s a lot like opening an account at your neighborhood bank.
  9. Investing

    2 Investing Implications of Higher US Rates

    While U.S. economic data continue to come in mixed, the numbers still point to decent U.S. economic growth.
  10. Economics

    How Healthy Are Turkish Banks?

    Turkish banks remain vulnerable to the Federal Reserve’s expected rate hike that could curb capital flows to emerging markets.
  1. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  2. Is Japan an emerging market economy?

    Japan is not an emerging market economy. Emerging market economies are characterized by low per capita incomes, poor infrastructure ... Read Full Answer >>
  3. What kinds of costs are included in Free on Board (FOB) shipping?

    Free on board (FOB) shipping is a trade term published by the International Chamber of Commerce or ICC, that indicates which ... Read Full Answer >>
  4. What are the differences between B-shares and H-shares traded on Chinese stock exchanges?

    Equity listings in China generally fall under three primary categories: A shares, B shares and H shares. B shares represent ... Read Full Answer >>
  5. What are the differences between H-shares and A-shares on Chinese and Hong Kong stock ...

    Publicly trade companies in China generally fall under three share categories: A shares, B shares and H-shares. A-shares ... Read Full Answer >>
  6. Why are financial markets considered to be transparent?

    Financial markets are considered transparent due to the fact it is believed all relevant information is freely available ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  4. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
Trading Center