Japan's economic growth is unprecedented. It has made her the third greatest economic power on earth. However, Japanese living standards still rank below those of many other developed countries, and there is a strong feeling in Japan that these standards must be raised-and raised rapidly.

Japan's wealth gives her a tremendous stake in the peace and stabillity of Asia, and the dynamism of her economy inevitably has a major impact on the entire region. In recognition of these facts, Japan has taken a major role in the regional activities of the area. As a permanent method of meeting her interests and discharging her responsibilies, however, these regional activities may not prove adequate. moreover, Japan's position as a major beneficiary of a liberal international- economic system is not consistent with her slowness in removing- the restrictions which limit the access of others to her own vibrant aestic economy.

My administration shares with the government of Japan the conviction that our relationship is vital to the kind of world we both want. They are determined to act accordingly. But the future will require adjustments in the U.S.-Japanese relationship, and the issues involved are too important and their solutions too complicated to be viewed with any complacency on either side.

Fortunately, they are not. Both the Japanese and the American governments regard each other with profound goodwill and mutual respect. Both are determined to show the greatest possible understanding of the interests of the other. The maintenance of that spirit of cooperation and goodwill is not only the goal of our policy toward Japan. It is also the best assurance that the policy will succeed.

In recognition of our growing interdependence and Japan's own increased stature, Prime Minister Sato and I agreed in November 1969 to enter into negotiations for the return of Okinawa to Japanese administration by 1972. I can now report that negotiations on this question, including the retention of our Okinawa bases, are progressing steadily. Our aim is to reach the specific agreements this spring, allowing us to obtain the necessary legislative support to proceed with reversion in 1972.

Last December, we and the Japanese agreed to significant realignments in our military bases in Japan, which will result in a reduction of some twelve thousand U.S. military personnel over the next several months without adversely affecting our ability to meet our commitments to Japan or other Asian allies. The Japanese have announced plans for continuing qualitative improvements of their own self- defense capabilities, enabling them to provide for substantially all of their conventional defense requirements.

The United States and Japan have everything to gain from a further expansion of already close and profitable economic ties. Japan has for many years been Americans largest overseas customer, and I am pleased to report that in 1970 our exports to Japan grew by some 35 percent to approximately $4.5 billion. This included more than $1 billion worth of products from America's farms, equivalent to the production of 10 million acres and the labor of more than 100,000 farmers. American purchases from Japan are even larger. The United States takes some 27 percent of Japan's exports, amounting in 1970 to almost $5.9 billion. I am glad to note that Japan has accelerated its program of liberalizing its restrictions on imports, and is also assign its restrictions on foreign capital investment. Despite the barriers Japan still maintains, direct American investment in Japan presently amounts to more than $ 1 billion. I expect this figure will increase the recognition grows within Japan that its own self-interest lies in providing wider investment opportunities.

The friendly competitive relationship, which properly characterizes his greatest transoceanic commerce in the history of mankind, is not without difficulties. An example is the protracted negotiations over be question of Japan's textile exports to the U.S., but I am confident we can find a solution which will be in our mutual interest.

In the important area of foreign aid, cooperation rather than competition is the watchword. Japan announced during the year that it intended by 1975 to raise its foreign assistance contribution to one percent of its GNP. We anticipate Japan will take a leading role in international and regional aid efforts, hopefully with less emphasis on commercial financing than in the past.

We are two strong nations of different heritages and similar goals. If we can manage our extensive relationship effectively and imaginatively, it cannot help but contribute significantly to the well-being and prosperity of our two peoples and to the nations of the entire Pacific Basin.