Japan, in an annual government report issued Tuesday, blamed the U.S. trade and budget deficits for dampening world trade and investment and called on Americans to be more competitive and produce more goods.

The 1988 White Paper on International Trade, submitted to Prime Minister Noboru Takeshita's cabinet, also urged Japan to break with its past strategy of emphasizing market share in foreign markets and concentrate on domestic markets.After the cabinet meeting, Finance Minister Kiichi Miyazawa said Japan should reduce its dependency on the United States as a market for its exports.

Miyazawa said sales to the United States should drop between 25 percent and 30 percent of Japan's total exports, instead of the present 40 percent, to improve the U.S. $59 billion trade deficit with Japan in 1987.

"International imbalances, especially the internal and external imbalances of the United States, are having a dampening influence on trade and investment by causing exchange rate fluctuations and destabilizing market prices," the report said.

It suggested the United States reduce government spending, expand productive capacity, and become more competitive in quality and other aspects besides price.

The United States, burdened with a foreign trade deficit in 1987 of $171.2 billion, "lacks an export-minded approach," the paper said.