Akio Kon/BLOOMBERG - A worker walks past container trucks at a shipping terminal in Yokohama City, Kanagawa Prefecture, Japan, on Feb. 20, 2013. Japan's trade deficit swelled to a record $17.4 billion in January on energy imports and a weaker yen, highlighting one cost of Prime Minister Shinzo Abe's policies that are driving down the currency.
The worry in the United States and elsewhere is no longer about Japanese dominance. Instead, it’s more about the implications if the country slides into irrelevance.
“It is still a very large economy. For the U.S. it is important. . . . In the region it is key,” said Jerry Schiff, Japan mission chief for the IMF. But “under a not very optimistic scenario it may become not very important at all.”
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The decision comes despite intense resistance from online advertisers.
WASHINGTON — In a move that could send interest rates higher, Fed Chairman Ben Bernanke ended weeks of speculation Wednesday by saying the Federal Reserve will likely slow its bond-buying program this year and end it next year because the economy is strengthening.
Policy committee sees stronger housing market, slow growth through 2014.
The country’s recent economic performance has compounded those concerns. The 2011 tsunami and nuclear crisis highlighted Japan’s vulnerability and the fragility of the global supply chain it helps fuel. When plants in Japan shut down because of electricity shortages, facilities around the world had to cut production because of Japan’s importance as a source of high-end parts and supplies.
Although reconstruction led to a brief rebound in economic growth, the country quickly slipped back into recession. Its world-leading level of government debt has always seemed to defy gravity — with low interest rates despite its size — but many analysts feel that some of Japan’s built-in protections against a debt crisis are being lost. It ran a rare trade deficit in 2011 and needs its banks to shift from buying government bonds to investing in the economy. Even a small rise in the country’s borrowing costs, according to a recent presentation by an IMF official, could make its debt load unsustainable — with unpredictable implications if the world financial system suddenly loses what has been a safe-haven investment.
Those considerable problems framed Abe’s plan — a set of ideas that has been given its own moniker, “Abenomics” — and will frame the talks with the Obama administration.
For Obama, the incentives are just as great to pull Japan into the TPP’s orbit. Peterson Institute trade expert Jeffrey Schott estimated that the 11 nations currently discussing the agreement comprise about 30 percent of global economic output. Adding Japan and possibly South Korea could bring that to 40 percent — a potentially potent force for setting trade standards that other nations, including China and India, might feel compelled to adopt.
With similar talks underway between the United States and the European Union, the administration hopes it can shape global intellectual property, Internet commerce and other policies in ways that work to the advantage of U.S. companies.
Japan’s economy is in many ways relatively open — with low average tariffs, for example. But its trade surplus with the United States is large and persistent, second only to China’s last year at $76 billion. Some markets seem virtually closed to U.S. companies, if not by law then by long-standing custom. The Japanese, for example, don’t buy many American cars: the United States imported nearly $30 billion in passenger cars from Japan in 2012; Japan, whose 127 million people make it about one-third the size of the United States, imported only $600 million in American-made passenger cars.
Those patterns may not change much under a free-trade accord: As in South Korea, where hometown favorites such as Hyundai dominate the market, it’s unlikely that imports will ever dislodge Toyota, Mazda and others from their hold on local consumers.
But U.S. officials have said they want some upfront concessions from Japan before agreeing to let Tokyo join the TPP talks. In advance of Abe’s visit, Japan lifted restrictions on imports of U.S. beef, for example.
Joining the TPP would force Japan to open other parts of its economy as well — health care, financial services and agriculture among them. It would also, in dramatic fashion, up the economic and geopolitical importance of the TPP talks.
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