Foreign Relations of the United States, 1964–1968, Volume XXIX, Part 2, Japan

103. Memorandum From Secretary of the Treasury Fowler to President Johnson¹

Washington, November 11, 1967.

SUBJECT

• Discussions with Prime Minister Sato

The U.S. has taken an initiative for balance of payments cooperation with Japan which is of major importance to U.S. financial ability to maintain the U.S. military security posture in the Far East. The U.S. has proposed to Japan that certain points be submitted to you and Prime Minister Sato for approval when he visits Washington November 14–15. I believe that it is of major importance to the overall U.S. balance of payments program that you obtain the Prime Minister’s approval of these points. (See Attachment A; Sato will probably state the views shown in parentheses under each point in the attachment.)²

You will also have Secretary Rusk’s memorandum for the Sato visit which includes balance of payments talking points.³ We participated in the preparation of this memorandum and are in full agreement with it.

However, after this memorandum was completed on November 9 Japanese Finance Ministry officials provided Treasury officials, in discussions on November 10, with information which overtakes some of the points in the Rusk memorandum to you.⁴

Specifically, Sato will not be able to undertake a commitment now to reach the $500 million goal of balance of payments assistance insofar as that includes the purchase of special medium-term U.S. paper in the amount of $200 million. Our supplementary memorandum suggests that, while recognizing that he cannot give you this commitment now, you urge him to keep the matter open for further technical discussion between the two Finance Ministeries.

Also, that you emphasize the concept of maintaining the long term financial viability of our security posture in the Far East.

Also, that you do not accept any linkage of Japanese action on our balance of payments in exchange for U.S. action respecting the Bonin and Ryukyu Islands.

These observations are developed briefly below.

The topic of Japanese reversionary rights to the Bonin and the Ryukyu Islands will also be a major subject during the Sato visit. I anticipate that Sato may say to you that the amount of their balance of payments cooperation depends on how much we satisfy their objectives for control over the Islands.

I recommend that you make clear to Sato that the U.S. does not link the substance of these two matters. Japan is not being asked to cooperate on the overall U.S. balance of payments program in exchange for some U.S. action respecting the Bonin and the Ryukyu Islands. To the extent possible, I believe each matter should be examined and decided on its own merits.

I recommend that you emphasize to Sato that balance of payments cooperation is particularly important to our financial ability to provide the defense shield under which the Pacific basin can develop. Our military deployments and heavy foreign exchange expenditures in the Pacific area are necessary for our security and Japan’s, although we do not view U.S. military forces in Japan as being there primarily for the defense of Japan. These expenditures have brought large direct and indirect benefits to the Japanese economy and balance of payments.

You may wish to emphasize to Sato that no one country should suffer undue costs or gain undue benefits from expenditures for the common security, and that these expenditures should be recognized as an extraordinary item in U.S. accounts. I believe Sato should be led to recognize that neutralizing these extraordinary security expenditures is a prime motivation for the U.S. seeking balance of payments cooperation from Japan—even though there is agreement that the matter cannot be discussed publicly at this time.

Treasury representatives will be meeting with Japanese officials on Thursday, November 16 (the day after you conclude your sessions with Sato) in order to expedite follow-up action. I hope that arrangements can be made for me to have the benefit of any conclusions you may reach with Sato so that the November 16 meeting can proceed effectively.

Henry H. Fowler

1. Source: Johnson Library, National Security File, Country File—Addendum, Japan. Secret.
2. Attached but not printed.
3. The memorandum, November 10, is in the National Archives and Records Administration, RG 59, Central Files 1967–69, POL 7 JAPAN.
4. Revised pages to the memorandum incorporating changes resulting from those discussions were distributed on November 12. (Ibid.)