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. Investing

    What a Fed Delay Means for the ECB & BoJ

    The Fed’s continued delay has repercussions for more than just the U.S. economy and markets. The ECB and the BoJ may support the case for stocks in Europe.
  2. Investing

    How Worried Should We Be About China?

    An economic slowdown, a freezing up in trade and plunging markets and currencies are casting a shadow across Asia—and the globe. How worried should we be?
  3. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  4. Investing

    Latin America’s Economic Forecast

    After a ten-year run, the economies of Latin America are in a decline. For sustainable, long-term growth, the region needs structural reforms.
  5. Budgeting

    How to Travel to Tokyo on a Budget

    Planning a trip to Tokyo? Here are a few ways that you can make the trip more affordable.
  6. Investing

    Aging Japan Is an Arrow in the Back of Abenomics

    There are many factors affecting Japan’s economic difficulties, but the true killer of Abenomics may simply be Japan’s aging population.
  7. Economics

    These Will Be the World's Top Economies in 2020

    Discover the current economic forces that are anticipated to significantly shift the landscape of the world's most powerful economies over the next decade.
  8. Mutual Funds & ETFs

    Top 3 Japanese Bond ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
  9. Stock Analysis

    The 5 Biggest Russian Oil Companies

    Discover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
  10. Stock Analysis

    Who Are Delta Airlines’ Main Competitors?

    Compare the top competitors of Delta Air Lines, Inc. Take a deeper look into the key drivers of competition in the airline industry.
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. How does a Foreign Institutional Investor (FII) manage currency risk when investing ...

    A foreign institutional investor (FII) manages currency risks (inflation and exchange rate risk) by using traditional tools ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  2. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  4. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!