Things have moved on, and today the most glaring aspect of this trans- Pacific relationship is that Japan's trade surplus with the US is the biggest in the world, 'bar none'. Japan exported nearly dollars 50bn ( pounds 32.3bn) more in goods to the US than it imported last year, and its surplus with the US was more than one-third of its worldwide trade surplus.
Japan's prime minister, Kiichi Miyazawa, arrived in Washington yesterday for talks with President Bill Clinton. This conspicuous trade statistic is likely to be mentioned rather often as the new Democrat administration tries to demonstrate a tougher approach on trade issues with Japan.
But, as Mr Miyazawa indicated with predictable fatalism in Tokyo earlier this week, there is little that can be done in the short term. Japan has had trade surpluses with the US for years, said the prime minister, adding: 'There is no reason why we should solve it overnight.'
As usual, both sides were blaming the other in advance of the talks. The US says Japanese markets are closed to imports, Japan says American firms simply do not try hard enough.
The truth is somewhere in the middle. Japan's domestic market is undeniably biased against importers - be they American, European or Asian - while it is also true that many American firms were slow to take the Japanese market seriously. US car manufacturers, for example, only began making vehicles suitable for Japan's convention of driving on the left last year.
The Clinton administration's favoured option is to set up specific goals for US exports to Japan in different industries, particularly computers and car parts. Japan is against setting such quantitative goals, and officials at the ministry of international trade and industry are still rueing the day when they agreed to a deal guaranteeing US makers 20 per cent of Japan's semi-conductor market by the end of last year.
Japan in fact just reached the 20 per cent threshold in time for the deadline, but officials fear they have set a dangerous precedent for similar deals in other sectors.
'We must never agree on managed trade,' said Mr Miyazawa this week. 'We really cannot tell private industries to purchase something from this country or that country.'
Noble words, and quite fitting for a government that gains more than most from free trade around the world. Unfortunately, Mr Miyazawa's ideals are being undermined by an investigation into the affairs of the disgraced former political godfather of Japan, Shin Kanemaru.
As prosecutors began to dig deep into Mr Kanemaru's affairs to find out where he was getting the millions of pounds in undeclared cash and gold bars discovered in his house and office, it was found that nearly every large construction company in the country was regularly paying off 'the Don' to ensure a continued stream of public works projects.
The documents dug up by the prosecutors proved what many had long suspected - that, contrary to Mr Miyazawa's words, the government can and does tell private industries how to conduct its business in a cosy system that shares out the spoils among domestic contractors while keeping foreign firms that do not bribe Japanese politicians almost entirely outside the loop.
This is embarrassing for Mr Miyazawa. Japan announced a record supplementary budget to boost its economy earlier in the week, and a large part of the pounds 75bn package is earmarked for public works, including roads, bridges and other big construction projects. Mr Clinton might innocently wonder whether any foreign building firms will be getting a look-in in these projects.
As it was, the supplementary budget package was partly designed to placate US demands for more government action in Japan to stimulate the economy and suck in more imports. But economists are divided on how much - and how soon - the economy will respond.
WORST ON RECORD
The key to increasing imports is increased consumer spending - and that is just not happening. Last month Tokyo's main department stores recorded an 11 per cent drop in sales, the worst contraction on record. And, to make things worse, private companies are all forecasting lower levels of capital expenditure.
As one newspaper pointed out, consumer spending and corporate investment together account for 80 per cent of Japan's GNP, whereas public works only account for 7 per cent. The ministry of finance managed to stall proposals for a cut in income taxes, which might have directly affected the consumer, so the stimulatory package was lopsided in its focus on public works.
And, contrary to the highly optimistic forecasts being made by politicians about imminent economic recovery, the more sober governor of the Bank of Japan, Yasushi Mieno, urges caution. Which brings us back to the starting point - the world's biggest trade surplus - and no immediate signs of it going down.
Meanwhile, the battle between the ministry of finance and the high- powered derivatives departments of US securities firms continues, with a new set of rules being proposed to limit trading in derivatives.
Before the recent rally of the Tokyo stock exchange the only dealers making any real money were the futures and options arbitrageurs. This derivative trading is, to the ministry's annoyance, dominated by US firms.
In an attempt to stifle this market, commissions on futures have already been doubled and trading time has been reduced. Now the ministry, together with the stock exchange authority, has come out with some new proposals, including a 'circuit- breaking' mechanism under which all arbitrage transactions would be stopped if prices changed by more than 3 per cent.
The new proposals restricting arbitrage were recently put to a group of foreign and Japanese brokerages, which all complained that the intention was to put a halt to derivatives trading altogether. The official explanation for the new proposals is to 'reduce volatility' in the market.Reuse content