Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

179. Memorandum From the President’s Special Assistant (Rostow) to President Johnson¹

Washington, February 7, 1968.

SUBJECT

• Report on Our Balance of Payments Negotiations with Japan

At Tab A is Secretary Fowler’s memo giving you the results of our negotiations to get some balance of payments offsets for our military expenditures in Japan.² When Prime Minister Sato visited you in November³ he said Japan would take cooperative actions that would have the effect of helping our balance of payments by $300 million in 1968, and if possible go up to $500 million.

In negotiations just completed by Treasury and State, Japan agreed to a package amounting to $350 million:

— increased purchases of time deposits in the U.S.	$210 million;
— increased military purchases and direct investments in the U.S. combined	$100 million;
— other	$ 40 million
	$350 million

Japan also agreed to shift some of its borrowing from banks in the U.S. to the Eurodollar market.

We could not get the Japanese to take trade actions—such as removing some of their restrictions—but this is still under consideration. In any event, they will not move in this area until they know what we will do on the border taxes.

The Japanese asked us for assurances that we will continue our present policies on their $100 million IET exemption, on Export-Import loans, and on bank lending under the Federal Reserve program. Secretary Fowler plans to give them these assurances and, at the same time, tell their Finance Minister we want to meet with them again in the late spring to see if they can do more—particularly if their balance of payments position improves.

Fowler is disappointed over the Japanese offer and believes it shows that Japan has not yet accepted a clear responsibility to offset our military expenditures there.

My comments is that we are making progress and Fowler has a good series of consultations going. Japan had a balance of payments deficit of over $600 million in 1967 and they face a deficit of $400 million this year. This puts some limits on what they can do. We also have to remember that their reserves are low and they keep them almost entirely in dollars, not gold.

Walt

1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. V [2 of 2], Box 3. Confidential. A handwritten notation next to the dateline on the source text reads: “Rec’d 12:28 p.”
2. Fowler’s attached memorandum to the President, February 3, is not printed.
3. Prime Minister Sato held discussions with President Johnson and other U.S. officials November 14–15, 1967. Extensive documentation on the talks is scheduled for publication in Foreign Relations, 1964–1968, volume XXIX.