This morning the Director of Military Intelligence, Japanese General Staff , sent for the British Military Attache at Tokyo  and spoke as follows:-
Britain's hostile attitude to Japan's aspirations in China and [pusillanimous]  handling of outstanding problems has driven Japan into the arms of Germany and now overwhelming majority of Japanese people and especially fighting forces are anti-British.
With collapse of France, and Britain's impotence in the Far East, Japanese people felt that they must seize opportunity. Nothing now to stop Japan seizing any or all of Indo-China, Netherlands East Indies and Hong Kong. Japanese forces already prepared to man frontier of Indo-China to ensure no goods went out to China and may even find it necessary to enter Indo-China. United States in no condition to prevent Japan from taking whatever action she likes in Western Pacific. Great Britain now had last chance and if she took it positive action by Japan might be averted.
Japan's demands were- (1) Immediate closing of Burma-China frontier;
(2) Immediate closing of Hong Kong frontier;
(3) Immediate withdrawal of British troops from Shanghai.
Instant acceptance was only thing which might yet avert declaration of war by Japan against Great Britain.
Director went on that the Government was weak and the Army all- powerful, and if Great Britain believes soothing words of Japanese Foreign Office, they were deceiving themselves.
Craigie  is to see Japanese Minister for Foreign Affairs  later this afternoon.
This approach from the Army shows division in Japanese Government.
War Minister  and Chief of the General Staff  have recently been taking very independent line, e.g., joint congratulatory telegram to Mussolini (External Affairs telegram No. 440) , and Craigie has learned that they both have been received in audience at the Palace.
Everything depends on the attitude which U.S.A. adopts. The Foreign Office are repeating Craigie's telegram to Lothian.  I have urged that it is most essential that he should discuss it fully and frankly with the State Department.