I have seen and discussed with the British Ambassador  telegram from Craigie in Tokio  to effect that the time has now come when circumstances of the war in Europe necessitate a major change in British and if possible American policy in Far East. He questions whether if Japan were to become active aggressor in Far East United States would fight. I believe in domestic political situation that exists in United States that United States would not fight. In fact British Ambassador at Washington has been given quite definite indication that while United States would give all moral backing and support to British Government in face of threatened Japanese aggression in Far East, United States would not fight.
Craigie believes were Great Britain and United States to agree on it promptly understanding might be yet reached with Japan along the following lines:-
(a) Joint assistance in bringing about peace with the Chinese Government on the basis of restoration of China's independence and integrity.
(b) Japan formally to undertake to remain neutral in European War and to respect the territorial integrity, not only of the Netherlands East Indies but also of British, French and American possessions in the Pacific, so long as the status quo in these territories is preserved.
(c) United States and members of the British Commonwealth to give Japan all financial and economic assistance and all facilities in their power both now and during post-war reconstruction period.
(d) Allied Governments to receive full guarantees against re- exports to enemy countries.
(e) Question of settlements and concessions in China to be left in abeyance until the restoration of peace in Europe and China.
My mind has been working along somewhat the same lines in the last few clays but although I claim no intimate knowledge of Far Eastern politics I cannot believe satisfactory settlement with Japan can be reached which includes point (a) above. I believe common sense of situation must entail certain possible large territorial concessions by China to Japan leaving Japan allowed control certain areas and China certain other areas.
In considering above I would point out to you chance of the United States Government moving considerable part of their fleet from the Pacific to the Atlantic will be very much increased if French fleet yielded to Germany. This may possibly unfortunately happen at a very early date. If American fleet moves from the Pacific, any such approach to Japanese as is suggested above has considerably less chance of success, as Japanese would know they would have little opposition of any consequence to any move outside China they should care to make.
In other words the situation becoming the perilous one that we are now maintaining a policy vis-a-vis Japan which cannot in fact be backed up by force because American Government appears unlikely to allow its fleet to become engaged against Japan in the near future and their fleet may even practically disappear from the Pacific.
If the above policy is to be adopted it will have to be done very quickly and it would be greatly to our advantage to have the cooperation of American Government in seeking to carry it out.
My own instinct is quite definitely that we should seek to come to terms with Japan on lines that would be attractive to Japan for the simple reason that beggars cannot be choosers.
Even if the United States Government does not agree to alteration in its policy necessary to enable it to negotiate with Japan side by side with Britain I still believe that Britain should negotiate. Otherwise Britain may be driven to war with Japan and will not have active American support.
First step should be to endeavour to secure the cooperation of the United States Government in seeking to carry it out.
The United States policy up to the present has been to resist Japanese aggression in the Far East by all negative means but there are highly placed individuals in the State Department who believe British Empire and United States should come to terms with Japan and there is considerable support here in favour of an agreement with Japan. We should explain frankly to the United States Government that, much as we have valued their moral support in the past, it is not enough and that necessity drives us to seek settlement with Japan as we cannot face possibility of war with them in present circumstances. We hope they will be prepared to negotiate along with us as by so doing we can hope to limit concessions made by all of us. If they are unable to do so we trust that they will understand the situation we are in and that we must go ahead and make best bargain we can. I believe if Britain and/or America is going to negotiate with Japan on the above lines that America should agree to let her fleet remain where it is at least during the negotiations and to let it be known by public statement that it is so remaining.
Lothian is cabling the British Government today in the same general sense as this cable. I believe most urgent consideration should be given to all the above and would be grateful most urgent advice as to attitude I should adopt.