Japan Needs a New Role that's Not America's Cash Dispenser

It shouldn't surprise anyone that leaders in the United States treat Japan as a cash dispenser.

President Donald Trump touted the Japan-US agreement for a $550 billion USD (about ¥80 trillion JPY) investment-and-loan framework. He called it "like a signing bonus that a baseball player would get… That's our money. It's our money to invest, as we like."

US Commerce Secretary Howard Lutnick put it bluntly: "Japanese are the financier. They are the banker. They are not the operator." The Ishiba administration has bargained almost exclusively over tariff rates in the Japan-US talks — most notably, bringing forward the 15% tariff on automobiles and auto parts. By contrast, the Trump administration is intent on locking in Japan's framework for investment in the US.

A comparison of Japanese firms' direct investment in the US with their domestic capital spending shows both total and net amounts. For domestic investment, net means gross outlays minus depreciation — that is, new facilities. For US investment, net excludes reinvestment of locally generated funds, so most of it represents new facilities.

In gross terms, investment headed to the US is about one-third of domestic spending. On a net basis, the relationship flips. In fiscal 2023 and 2024, net investment in the US is more than double the net investment at home.

During his February visit to Washington, Prime Minister Shigeru Ishiba sought to ingratiate himself with Trump. He boasted that Japan is the largest source of direct investment in that country. In practice, Japan is channeling capital to America while shortchanging investment at home.

Like a Moth to a Flame: Japan and Trump's Bid to Revive Manufacturing

For a White House bent on reviving American manufacturing, Japan is like a moth to the flame. Japanese firms are gladly bringing fresh capital and cutting-edge technology to the US.

Alongside steep import tariffs, the Trump administration is urging companies from Japan and Europe to invest in the US. That approach bore fruit in the Japan-US tariff deal on July 22 and the US-European Union (EU) deal on July 27.

Japan's investment in the US is fully underwritten by government-affiliated lenders. It is led by the Japan Bank for International Cooperation (JBIC), through equity, loans, and credit guarantees.

By contrast, under the US-EU agreement, the EU has declared that investment will be executed entirely by the private sector, not governments.

EU data show the bloc's net direct investment in the US is highly volatile as it prioritizes repatriation. In 2023, it swung sharply negative.

Japan's investment, by comparison, has risen steadily. And with government-affiliated institutions now fully engaged, that trajectory is likely to continue.

Investment always entails risk. In manufacturing, private capital often hesitates under the pricing pressure of cheap Chinese imports. When government-affiliated institutions fund firms directly — or guarantee their bank loans — they take on that risk, clearing a major obstacle to private investment. On top of that, roughly 90% of the returns from these investments accrue to the US, with only about 10% to Japan.

*President Donald Trump speaks at the White House on August 6. (©Reuters via Kyodo)*

Who Controls the Money

Getting the deal, Trump declared, "It's our money to invest, as we like," signaling that Washington would choose the investors, the projects, and the spending. The implication was plain: Japan should just provide the money.

The cash dispenser label has rarely felt more apt.

Only one prominent Japanese politician ever openly pushed back. He was former Finance Minister Shōichi Nakagawa, who died in October 2009. After the collapse of Lehman Brothers on September 15, 2008, Nakagawa visited the White House on October 11. He met President George W Bush and others to discuss Washington's plans to rescue its financial institutions.

There, he was shocked to learn that the Bush administration had removed North Korea from the list of state sponsors of terrorism, despite unresolved abductions of Japanese citizens. He pressed Bush directly.

Back in Tokyo and still dissatisfied, Nakagawa received an old acquaintance — a former senior US official — at the minister's office after 3 PM on October 20. He asked him to deliver a verbal message to President Bush: "Japan will not quietly serve as America's cash dispenser."

I was present as the interpreter. (For details, see my book Bōkoku no Zaimu Genrishugi (tentative English title: The Fiscal Fundamentalism Driving Japan to Ruin), published by Kaya Shobo.)

How Long a Cash Dispenser?

Since Nakagawa's death, Japan's role as a major funder of America has only grown. The US current account deficit keeps widening. Surplus capital from Japan — where domestic demand is weak — flows into dollar-denominated markets, supporting US equities, the dollar, and US Treasuries.

Even so, it's hard to say Japan secured better terms from Washington than the EU or the United Kingdom (UK) in the tariff deal.

Lamenting the Ishiba administration's weakness won't change that. The task now is to reclaim a sovereign economic policy that puts domestic investment first. Unless Japan abandons tax hikes, austerity, and overreliance on the US market, it will remain America's cash dispenser.

(Read the report in Japanese.)

Author: Hideo Tamura