445 Lord Caldecote, U.K. Secretary of State for Dominion Affairs, to Mr R. G. Menzies, Prime Minister
Circular cablegram M40 LONDON, 26 June 1940, 4.34 a.m.
MOST SECRET FOLLOWING FOR THE PRIME MINISTER
His Majesty's Ambassador at Tokyo  has suggested that some readjustment of our Far Eastern policy which takes account of impact on Japan of recent developments in Europe is now urgently necessary.
2. His Majesty's Ambassador has expressed his doubts whether the aim of preventing Japan from being drawn into the war on the side of her former Axis partners can be achieved without the adoption of some more [positive]  methods than those followed hitherto.
He feels that the United States policy, designed so to wear down Japanese resistance that the Army in Japan would be deposed from its paramount position, is now in view of the French collapse certain to be ineffective.
3. Sir Robert Craigie considers that the issue by the United States Government of a declaration to the effect that they will not tolerate any change in Territorial status quo in the Pacific area would be valuable if it means more than a repetition of non- aggression but that if an eventual head-on collision between the United States and Japan is to be avoided, there should also be a more positive side to the Anglo-American policy in the Far East.
Hence it is important to know, without delay:-
(1) Whether in the growing emergency in the Far East the United States are prepared to co-ordinate policy and to act with us more closely than in the past;
(2) If so, whether it is possible to expedite some common policy capable of dealing with the German drive to secure Japan's involvement in European, war.
As to (2), he considers our object should on no account be to involve the United States in war in the Far East on our behalf Such involvement would be miscarried  to our most vital interests since it would divert the United States attention from Europe and seriously diminish the extent of the United States material assistance at a crucial point. On the contrary, he feels that we should seek a plan which would lessen the chance of the United States involvement in the Far East by offering some alternative to that policy of stark aggression for which extremists and younger officers in Japan are now pressing so strongly.
4. He believes that if Great Britain and the United States were to agree upon it promptly, an understanding might yet be reached with Japan along the following lines- (a) Joint assistance to Japan in bringing about peace with the Chinese Government on the basis of restoration of Chinese independence and integrity.
(b) Japan formally to undertake to remain neutral in the European war and to respect the full territorial integrity not only of the Netherlands East Indies, but also of British and French and American possessions in the Pacific so long as the status quo of these territories is preserved.
(c) United States and members of the British Commonwealth to give Japan all financial and economic assistance and facilities in their power both now and during the post war reconstruction period.
(d) The Allied Governments to receive full guarantees against re- export to enemy countries.
(e) The question of the future status of settlements and concessions in China to be left in abeyance until the restoration of peace in Europe and China.
5. On method of procedure he thinks that such proposals should emanate from the Japanese themselves, and he has reason to believe that this might be quickest if the Japanese intermediaries were to be definitely assured in advance that a settlement on these lines would be acceptable in principle both to the United Kingdom and the United States Governments.
6. If, however, the United States answer to both questions in paragraph 3 were to be negative, and if the United States Government were unable to give us a promise of [active] support even as regards the International Settlement at Shanghai, he feels that best we could seek would be to gain time by concessions on points not considered of capital importance.
7. A telegram has been sent to His Majesty's Ambassador at Washington  suggesting that there seem to be two courses of action open to the United States:-
(a) To increase their pressure either to the extent of a full embargo or of the despatch of ships to Singapore in full realization that this may result in war with Japan.
(b) To seek to wean Japan from aggression by a concrete offer on the lines indicated by Sir Robert Craigie.
8. The United [Kingdom] Government appreciate that if the United States of America were involved in war with Japan, she would be unable to give the material assistance which we require in Europe at the crucial moment (though it is not  known to what extent this would apply to Fleet action only). If the United States Government shares this view then we are anxious to know whether they are prepared to give early and serious consideration to the second alternative mentioned in paragraph 7.
9. While there is no doubt an element of bluff in the Japanese attitude and while wiser elements in Japan cannot but be conscious of what are adverse effects upon their economy of an extension of the policy of aggression, we cannot ignore the possibility that interventionists may before long gain complete control. If anything can be done to prevent this, it must be done soon.
10. In the meantime, we are faced with the necessity of returning a reply to the Japanese demands  which we understand have just been presented through the Ambassador:-
(1) To withdraw our garrison from Shanghai;
(2) To close the Hong Kong frontier;
(3) To close the Burmese frontier to supplies to Chiang Kai Shek.
11. As to (1), we feel that as the United States are not in a position to promise armed support, and as our own territories in the Far East are now in some danger of attack, we may well desire to withdraw troops to reinforce the garrisons of our colonies. We should however prefer not to appear to be giving way to a Japanese demand, and to take this step in return for definite undertakings by Japanese possibly as a part of a general settlement on the lines of paragraph 7 (b). It is questionable however whether we could delay our reply for very long.
12. As to the second demand, we may be able to satisfy the Japanese without in fact making any concession in principle. But the third demand presents serious difficulties and is one which we feel we should endeavour to resist. At the same time, we have to recognize that the Japanese if they persist in their intention have means to enforce it. The contemplated  situation is further complicated by the fact that by far greater part of the traffic to which objection is taken is United States. Put bluntly, our problem is whether we are to incur both United States and Chinese odium by stopping traffic or face the consequences of refusal without the United States support.
13. His Majesty's Ambassador has been asked to put these considerations before the United States Government at the earliest possible moment, and to invite their observations. 
His Majesty's Ambassador has been authorized to add that if there is war in the Far East we Shall resist to the best of our ability.
The slenderness of our resources must however already be apparent to the United States Government and the effect upon our operations in Europe of the severance of our communications, the loss of supplies and possibly also of shipping would be obvious. If on the other hand the United States Government feel able later  to come to our assistance or to undertake a policy directed towards the termination of hostilities between China and Japan, then we should be prepared to offer our full contribution. If conciliation is the alternative to be adopted, then it is obvious that the weakness of our position in fighting Japan renders it undesirable that we should take the initiative in the matter.