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CONFIDENTIAL
PRIME MINISTER'S MEETING WITH MR SONODA
BACKGROUND NOTE ON ANGLO-JAPANESE RELATIONS
1.
Relations are generally good, but trade problems continue
to be a potential source of friction. The Japanese Government
had hoped that the Prime Minister might stay on in Japan for an official visit after the Summit, but other high level contacts should provide opportunities to deepen our contacts with the Japanese on a wide range of multilateral as well as bilateral
issues.
2. Since the War, the over-riding British and Western interest
in Japan has been that it should remain a stable and democratic
member of the Western industrialised world. At the same time we
have a major interest to ensure that Japan's continued
development does not put impossible strains on the rest of the
world economy, in particular through the continuation of a
Large structural surplus on current account. This will require
a reasonably high rate of growth fuelled by internal demand
rather than by constant increases in exports.
3.
British exports to Japan made good progress in 1978, rising
by over 15 per cent to £542 million. But imports from Japan rose
even faster to £1,283 million. Britain has a surplus on invisibles with Japan, but the latest estimates suggest that it is declining and was at most £75 million in 1977. Imports
from Japan in sensitive sectors, such as cars and domestic electrical equipment, could again cause difficulties in our bilateral relations, although Japanese measures of self
restraint are, at least for the time being, working well. BL announced on 17 May plans to manufacture a Honda designed small
specialist car in BL plants. Firm proposals will be presented
to Government in about two months. Successful collaboration
between BL and Honda would strengthen the prospects for other
/ Japanese
CONFIDENTIAL