Repeated to Washington No. 1. Secret your telegrams Nos. 1, 2, 3.
Washington Nos. 238, 239. 
From my conversations here and from what I have read in Embassy Papers regarding Japanese tactics it would seem that Japanese Consul General  is adopting merely attitude that the Japanese have frequently adopted here and in the Netherlands East Indies of bluster and veiled threat in the hope of persuading us to give way.
2. I find that His Majesty's Ambassador  and the United States Ambassador  both agree in the view that it is impossible to pursue any policy of appeasement with the present Government so long as it remains linked with the Axis. In these circumstances our policy should be to maintain a firm front on all essential matters but to avoid pinpricks or anything that appears unduly discriminatory against the Japanese. This is also the policy Netherlands East Indies are endeavouring to follow.
3. I assume that all the three matters raised by the Consul General can be justified as necessary war measures applied impartially and not solely against Japan; as regards the transfer of funds that a similar request by any other foreign bank would meet same refusal; that in view of war conditions and for reasons set out in your telegram No. 3 visits of certain foreign commercial travellers to New Guinea and Papua would be unwelcome at present. In the same way the Japanese would not agree to such visits to Formosa or her [sic] Mandated Territories. As regards the embargo on the export of scrap iron, your telegram November 30th  specifically sets out that it applied to all destinations outside British Empire.
4. If my assumptions are correct it would appear that a courteous explanation on the above lines should be made preferably in Tokyo.
I expect to be received by Vice Minister for Foreign Affairs in next day or two and it might be an opportunity to mention the matter and explain the circumstances. I feel sure from what I am told here that any tendency to compromise on these matters would encourage new demands.