371 Mr R.G. Casey, Minister for Supply and Development, to Mr R.G. Menzies, Prime Minister

Cablegram C25 LONDON, 17 November 1939

FOR PRIME MINISTER MOST SECRET

Following is a summary of the Foreign Office appreciation of the Far East situation. (begins).

The Soviet-German non-aggression pact of 23rd August altered the situation and halted the activities of the Japanese extremists to convert the Anti-Comintern Pact into a military alliance. Since then the Japanese Government have adopted a non-committal attitude in foreign relations and emphasis has been laid on the determination to bring the 'China incident' to a successful conclusion. Germany has been using every endeavour to obtain a Russian-German-Japanese understanding, and although the Russian- Japanese truce of September and the release of fishing vessels have improved relations, these things in themselves are not considered sufficient to Justify the belief that a far-reaching agreement may result between Japan and the Soviet whose aims in the Far East are fundamentally opposed to one another. Japan will continue to have her Russian problem, and Russia her Japanese problem even though elements in both countries may not be averse to some limited concerted action, such as the supply of raw materials to Germany, which might Serve to inconvenience and weaken Great Britain.

Japan's main preoccupation is the settlement of the 'China incident' due partly to the effect of the prolonged Chinese war upon her economy which is already somewhat unsound and partly so as to present the Powers with a 'fait accompli' when, on the termination of hostilities in Europe, they are in a position to turn attention once more to the Far East.

Japan pins her hopes on the Central Government under Wang Ching- Wei. [1] Until new regime has been established and in being for some time, difficult to determine extent to which Japan likely to succeed in her plan. Until then she will be unable to rid herself of any commitments and she must also for some time remain in doubt as to reactions of other Powers and in particular democracies to her new venture. Japan occupied with difficult problems ahead in solution of the 'China incident' and unlikely to venture upon any scheme of southward expansion. British Ambassador at Tokyo [2] considers 'Japan has hands far too full in China and is too apprehensive of the United States in present mood to think.

seriously of any move involving danger to Australia and New Zealand or territories in which these dominions are interested'.

There has been evidence in recent months of hardening of American opinion to [sic] denunciation of Trade Treaty and recent speech of American Ambassador in Tokyo. [3] Japan is left in uncertainty whether the United States will negotiate a new trade agreement on the expiry of the existing agreement in January 1940 and whether, if American complaints are met she will institute some kind of embargo. This uncertainty affords a measure of security to interests she might otherwise be tempted to attack.

Lothian [4] cables that there is widespread popular resentment in United States against the Japanese war in China and feeling is likely to demand the intensification of economic pressure when the question of treaty denunciation comes before Congress next January. If Japan began to expand outside the China Sea zone, in which her supremacy is recognised by the Washington Treaties, he thinks there would be powerful movement to stop it. Does not think public opinion would now stand aside if independence of the Philippines were challenged. There is, he says, no particularly strong feeling in America for Australia and New Zealand and United States action in the Pacific Ocean would be governed in the main by consequences to America and American interests of attempted Japanese expansion. If the Philippines were left alone and action concentrated on British possessions and Dutch islands other than Australia and New Zealand, the reaction of public opinion would be slower he thinks, partly because the Central Pacific is now regarded as a kind of American reserve and partly because Japanese expansion will eventually threaten the Monroe doctrine, and also war on Japan would probably not involve sending armies of American conscripts. Thinks America would be at war long before Japanese action threatened Australia or New Zealand.

Considered here also that there are other reasons why the Japanese would hesitate to extend attack on interests, one being British naval dispositions and mobility due to the absence of strong German fleet, and another is the fact that there is no war in the Mediterranean.

In the event of a German occupation of Holland, there is always the possibility that Japan might be tempted, either at the instigation of Germany, or of her own extremists, to descend upon the Netherlands East Indies, but this possibility also is conditioned by the factors outlined above which govern Japan's attitude towards British possessions in the Far East.

British policy towards Japan has been to endeavour to restore friendly relations, and compose differences arising out of Japanese action in China, if this can be done without injury to China's vital interests. Improvement in Anglo-Japanese relations may reasonably be expected as a result of the endeavour to settle Tientsin quarrel.

The conclusion broadly is that Japan will continue to concentrate her efforts on the solution of the 'China incident' and will sit on the fence as far as the European war is concerned, keeping her hands free to pick whatever trade advantages may offer. Ends.

Am sending summary of statement Singapore position in next cable.

[5]

CASEY

1 After being expelled from the Kuomintang on 1 January 1939, Wang opened negotiations with the Japanese for the establishment of a puppet government. He became President of the Chinese Central Government in Nanking on 30 March 1940. 2 Sir Robert Craigie.

3 Joseph C. Grew. For the text of his speech on 19 October 1939 see his book Ten Years in Japan (New York, 1944), PP. 289-294.

4 Lord Lothian, U.K. Ambassador to the United States.

5 Document 372.

[AA: A1608, A41/1/1, vi]