ABSTRACT
The beginning of bilateral relations between Japan and the European Communities first and the European Union later can be traced back to the early 1970s. In forty years they have evolved significantly, with, as in all relations, highs and lows. Because of the growing bilateral and global interdependence during the time span considered, they have become wider and deeper. They have moved from purely trade-centred negotiations and agreements to a large array of negotiations, dialogues and cooperation activities that, apart from trade, embrace, among others, financial markets, research and development, the environment, and consumer protection. Nevertheless, despite the growing maturity of the economic relationship, this chapter will argue that EU–Japan economic relations have been and remain fundamentally driven by trade and current account imbalances, as well as by the evolution of the bilateral exchange rate. This is mostly because all through the forty-year relationship Japan has consistently kept a sizable current account surplus as a share of GDP and a large trade surplus vis-à-vis the European Union. It is therefore not surprising that economic relations have become tense at times of large and expanding Japanese trade surpluses and yen weakness, while the overall relationship has improved and cooperation initiatives have prevailed when the EU trade deficit with Japan was low or decreasing.
