Foreign Relations of the United States, 1961–1963, Volume XXII, Northeast Asia

380. Telegram From the Embassy in Japan to the Department of State⁰

Tokyo, November 1, 1963, 9 p.m.

1356. Joint ECONCOM. Deptel 1004¹ and Emb’s A-1734, June 17, 1963.² Following is summary politico-economic assessment as of Nov. 1, 1963 (more comprehensive political comment prepared for use ECONCOM,³ and complete politico-economic assessment, being submitted separately):

[Here follow sections on the current Japanese economic situation and on prospects for the Japanese economy.]

C. Current situation of economy as affecting U.S.-Japanese relationship.

Despite general health of economy, with expanding production and exports, climate of Japanese/American economic relations has worsened since last assessment for period ending May 1963. Prevailing tone in press more often bitter than mellow; govt officials more skeptical than receptive to U.S. demarches on economic subjects.

Following developments are favorable, however, both to Japan-U.S. relationships and to fortunes of Liberal Democratic Party: (1) Japan’s invitation from OECD to full membership;⁴ (2) some reduction of discrimination against Japanese trade by European countries and Australia, as credit for acceptance of Japan given U.S. to considerable extent; (3) Japan’s increasing confidence in her role in Asia, again because encouragement by America has contributed to Japan’s confidence to take more initiative; (4) close consultation between two countries on matters affecting restoration of relations with Korea, enabling hopefully Japan to play major role in developing Korea’s economy, also drew Japan and America closer together; (5) visits of Ministers Ohira and Tanaka to U.S.

Unfavorable developments in our economic relationships however appear to outweigh favorable factors, insofar as Japanese public is concerned, and change in mood for worse is pronounced also in business, finance and government. Unfavorable factors include: (1) proposed interest equalization tax, which came as surprise and shock to Japan, especially when Canada was granted exception. It led to fears that denial of U.S. funds would seriously impede growth of Japan’s economy and that tax itself was prelude to still more drastic U.S. action; (2) continued reduction offshore and MAP procurement, and “Buy American” and “Ship American” policies: (3) fears that America embarking on protectionist course despite Kennedy Round stimulated by (A) protracted negotiations on cotton textiles; (B) unsatisfied Japanese aspirations on revision North Pacific Fisheries Treaty;⁵ (C) rumblings of possible restraints on woolen textiles; (D) anti-trust investigation of steel operations; (E) charges that steel products are still being dumped and demands for “audit” of steel companies books to verify information voluntarily provided by steel companies; (F) use of licensing powers of Dept Commerce in attempt enforce east-west trade restrictions in manner which Japanese considered unreasonable; and (4) apprehension over U.S. attitudes toward Japanese trade with Sino-Soviet Bloc countries, particularly ChiComs.

Joint ECONCOM scheduled for late November can materially improve climate of opinion in Japan if U.S. delegation can look forward with Japanese colleagues to remove misapprehensions and reassure Japanese of momentum of U.S. liberal trade policies. Despite problems, trade of Japan is flourishing with U.S., and Japanese economy is moving toward new highs. Furthermore, U.S. remains far and away most liked foreign country among Japanese, according to public opinion polls. Long list of contentious points should not obscure reality of fundamentally friendly attitude despite increasing number minor divergencies.

[Here follows a section on the current situation of the Japanese economy as it affected the domestic political scene.]

E. Problems for Japan’s future.

Japan’s leadership must plan for future that will be heavily depend-ent on overseas sources for raw materials, markets for exports, and capital funds which are essential if Japan is to continue to develop her social and economic structure. Circumstances dictate that Japan’s headlong growth rate is bound in long run to slow down, and that more attention must be given to improvements in Japan’s infrastructure, roads, schools, water and sewage systems. Diversion of labor, capital and management from expansive industry to these areas will have a dampening effect on economic growth that has made such startling advance in last decade. Japan’s need for raw materials appears today to present no special problems, except perhaps in case of sugar; shortage of world supplies and sharp price increases have increased substantially Japan’s bill for sugar and future supplies available to Japan cause her great concern. Japan’s problems, however, center on need for expanding export markets rather than on intensive search for imports and on her recent dependence on capital from overseas to finance continued growth which her people have come to demand and to expect. At Joint ECONCOM Embassy would expect Japanese side to stress this dependence and to seek U.S. guidance and advice on trends in U.S. and elsewhere which would affect Japanese prospects for expanding her exports of merchandise and her imports of capital.

Reischauer

0. Source: Department of State, Central Files, E 1 JAPAN-US. Confidential; Priority.
1. Dated October 30. (Ibid.)
2. Not printed. (Ibid.)
3. Regarding postponement of the Third Meeting of the Joint U.S.-Japan Committee on Trade and Economic Affairs, see Document 385. The “comprehensive political comment” is Document 381.
4. The OECD issued this invitation on July 26. Regarding U.S. support for Japanese admission, see Rusk’s March 28 statement in Department of State Bulletin, April 15, 1963, p. 572. Japan’s admission to the OECD was completed April 28, 1964.
5. For the joint press release issued at the close of the tripartite (United States, Japan, Canada) fisheries negotiations, which took place at Tokyo September 16-October 7, see ibid., November 4, 1963, p. 709. Documentation on the talks is in Department of State, Central File INCO 4 FISH for 1963. A review of the problems involved in revision is in Embassy Brief BB-2, November 2. (Ibid., FE/EA Files: Lot 66 D 225, Embassy Briefings) See the Supplement. For text of the international convention for the high seas fisheries of the North Pacific Ocean, with annex and protocol, signed at Tokyo on May 9, 1952, and entered into force for the United States on June 12, 1953, see 4 UST 380.