D1243, 1244, 1245  and your D1395,  Future of Japan.
We now have had opportunity to study the outline of the State Department's view on policy towards Japan and also the comments of the Foreign Office. We regret that a premature announcement was made on the terms whilst they were under discussion and before the views of Australia had been expressed in a matter of primary interest to her.
We again must make it clear that we expect to participate fully at all stages in Allied consultations and machinery affecting the future of Japan, viz., formulation of policies, drafting of armistice terms, signature of the armistice, definition of methods of control and machinery of control. The problem of co-ordination of policy and of control is crucial. In our view these cable communications are no substitute for personal round table consultation of principals who are entitled to speak and these views are in that tenor preliminary.
We are in agreement with the broad objectives stated in D.1244, assuming (4) to include elimination of militaristic elements and encouragement of democratic tendencies. We would, however, wish to include and secure United Nations recognition of an additional objective, viz.: fostering of internal economic, social and political conditions conducive to peaceful development of Japan.
Unless this is accepted as the desirable direction future Japanese evolution we fear that objectives (3), (4) and (5) would be achieved only temporarily if at all.
Our general view is that the elimination of Japanese militarism and its constant threat to Pacific security involves radical changes in Japan's social, political and economic pattern.
The roots of Japanese militarism are embedded in the totalitarian political economic and social system built up over the past seventy years by Japan's ruling groups. Superficial changes in governmental machinery and external trade would not suffice and their imposition during a relatively short period of foreign control would only provoke a nationalistic reaction without removing the influences chiefly responsible for Japan's aggressive policies. We realise that a radical policy of direct intervention in domestic affairs will be useless unless under-taken with determination and sustained until a democratic and popular regime is fully established. This would probably involve a considerable period of occupation and the danger that the powers concerned would weary of the task is real. This danger, however, must be weighed against the danger, which we also believe to be real, of a revival of Japanese chauvinism and aggression, if the main features of Japan's social, political and economic life are left substantially unchanged. In short, we believe far-reaching occupation and Allied military government are essential to complete the work and sacrifice of countless Allied lives in the cause of final victory over Japanese militarism. We fear that the occupation of key points only (if this is the meaning of Potsdam Declaration) would amount merely to token control and would not suffice to deal with underground and subversive elements nor would it permit of the proper supervision of internal affairs. Effective occupation and control will require large numbers of civil affairs personnel upon whose training and purposiveness much will depend.
The fundamental requirement, however, is a determined and sustained will on the part of the Allied nations. It might well be found, nevertheless, that such a policy applied vigorously in the early stages would produce promising conditions in a relatively short period. In any case it should be a principle that controls would be modified and withdrawn as soon as there were reasonable prospects of successful conduct of affairs by Japanese. The success of any controls will in our view depend on the extent to which Japanese participation is secured. This is a point to which we feel greater attention might have been given by the State Department.
Economic policies, we feel, should be guided by the general aim of fostering a Japanese society capable of living in peace. The depressed conditions of the agricultural population and industrial workers with consequent low consumption standards and limited domestic demand was largely responsible for the intense pressure for exports characteristic of Japanese industry. Agricultural poverty assured large supplies of cheap industrial labour with considerable productive power but low standards of living. These conditions resulted in the drive to secure markets which was an important element in Japan's territorial ambitions. (The same conditions provided large supplies of military manpower.) In turn there came an over-emphasis on heavy industries as war potential.
It is vitally necessary that every endeavour be made to correct this distortion of the Japanese economy. Policies should therefore include improvement of the economic and social position of the agricultural population and the fostering of trades union and other movements aiming at raising standards of living.
Subject to this general policy, our views on the immediate control of Japanese industry are as follows:-
(1) Economic disarmament covering all industry;
(2) Allied control of industry (including ship-building) with emphasis on restoration of light industries;
(3) Allied control of Japanese import and export trade with a view to fostering growth of essential consumer goods industries and giving effect to Allied reparations policy, having in mind also Japan's losses of overseas territory and the need to fit Japanese export trade into the postwar network of international economic relations;
(4) Reparations to be paid in kind as the Allies may determine.
We are mindful of the fact that Japan should not be allowed unrestricted economic expansion while the Allies carry the heavy burden of security. On the other hand we do not wish to prejudice the promotion of reforms by permitting the existence of mass unemployment and economic instability. We are utterly opposed to retention by the Zaibatsu of their monopoly of industry.
In regard to political objectives we are of course aware of the difficulty of obtaining precise agreement between the major Allied powers immediately concerned. For our part we are in agreement with the general statement in the United States draft (paragraph 3).  In the long run the best hope of success lies in encouraging popular influence on government in Japan. Essentially the task of replacing the domination of militarists, Zaibatsu and bureaucracy with a system of government responsive to popular needs is one for the Japanese people themselves. While it would be false to imagine that genuinely democratic forces in Japan will easily assert themselves after defeat it is in our view essential that democratic tendencies should be actively encouraged with a view to the emergence of a Japanese state capable ultimately of peaceful co-operation with the United Nations.
We support the proposal that in the initial stages the Supreme Allied Commander should assume complete authority. The Diet and all Japanese policy-making bodies should be suspended. We agree also with the principle that restrictions on the exercise of civil functions by Japanese should be relaxed as it becomes evident that this will promote the general policies outlined above. We agree with the United States proposals that there should be three periods of- (A) Severe military government;
(B) Close surveillance;
(C) Easing off of all controls.
The encouragement of Japanese activity in local government would be consistent with our attitude. Dissolution of all political parties is necessary but we would countenance new parties whose objects were compatible with the purposes of the United Nations.
Measures for public information and supervision of education should be compatible with the emergence of expression of public opinion.
Civil liberties would require legislative definition and protection by the military government. The judicial and police system contain obnoxious features which cannot be countenanced.
The Principle of freedom of worship raises the difficult question of State Shinto with its Emperor-worship and its militaristic associations.
We are not clear as to the position of the Emperor under the American proposals, i.e. whether it is proposed that the Emperor should be set aside completely or whether despite the suspension of his constitutional powers he might be used as a means of obtaining Japanese obedience to the decisions of the Military Government. The Foreign Office appears to favour retention of the Emperor's constitutional powers. We would insist that the Emperor, as head of the State and Commander-in-Chief of the Armed Forces, should be held responsible for Japan's acts of aggression and war crimes and would thus demand his removal. The future of the Imperial throne would be decided by the Japanese people as soon as conditions permit a freely determined decision. Political movements aiming at the abolition of the institution of the Emperor or his reduction to a constitutional Head of the State to be allowed freedom of organisation and propaganda.
Other points on which we are in a position to comment at present are as follows:-
(1) We would be irreconcilably opposed to the use in any capacity by the Allied Military Government of Japanese who have been prominent in any militaristic or fascistic movements or activities;
(2) Surrender terms to be signed by Emperor, military and Naval chiefs and principal Cabinet Ministers;
(3) Complete destruction or transfer of remnants of Japanese Navy, Air Force and military installations and material and surrender of Merchant Navy to Allied Nations, with proper share for Australia;
(4) Demobilisation of all service personnel, abolition of conscription, dissolution of Kempeitai (gendarmerie) and Tokkoka (Secret police), patriotic and secret societies and ex- servicemen's associations and prohibition of manufacture and carrying of weapons;
(5) There should be provisions safeguarding Allied Prisoners of War;
(6) There should be provisions regarding War Criminals including the Emperor;
(7) There should be provisions concerning Japanese Prisoners of War.