Much has been made in the past month of Japan’s newly announced monetary policy of aggressive easing. Prime Minister Shinzo Abe’s new head of the Bank of Japan exceeded most observers’ expectations by instituting a 2 percent inflation target, buying government bonds, and planning to essentially double the money supply by 2015. The yen has fallen dramatically relative to the dollar and Japan’s exporters have reason for optimism for the first time in years.
Now, a report that the United States reclaimed its position as Japan’s top export destination gives further evidence that Japan’s economy continues to evolve. Since 2009, China has been Japan’s largest export market, but trade between the two has been hit by two negative trends: China’s economic slowdown and the political crisis between the two over the Senkaku Islands. The first has been largely ignored by the U.S. media, which prefers to talk about China’s continued (and seemingly endless) growth; the other is a salutary reminder that political relations, even in an age of globalization, can trump economic self-interest. Riots, boycotts, export restrictions — all utilized to pressure Japan — have materially dented the world’s second-largest joint economic relationship.
On the other hand, if the trade numbers hold (and they can certainly revert), it will be a signal that the U.S.-Japan economic relationship remains of crucial importance for both countries. Some have lost sight of this in recent years as Japan’s economy seemed unable to recover from its economic malaise. Given a 10 percent year-on-year increase in exports to the U.S. in March, Prime Minister Abe may well have figured out how to jump start his country’s trading sector. There are storm clouds on the horizon, since the prospect of inflation and higher debt may not be sustainable for long. For now, however, the political ties that Abe is trying to repair with Washington are being supplemented by economic development. That’s good news for both countries; hopefully it will make them think more about their common interests and shared values as Japan’s region faces increased uncertainty and the threat of conflict.