FAR EASTERN SITUATION Mr. Makin  referred to the reports in the press of strained Japanese-Dutch relations owing to the failure of the trade negotiations, and enquired whether any report had been received as to the deterioration of the position.
2. The Prime Minister  said that the reports received did not go beyond what was stated in the press. The Dutch were holding out against coercion by Japan, who is seeking to get what benefits she can without resorting to war. If Japan feels that the situation is favourable to grab territory she will do so, and events in the Middle East would have an important influence on her attitude.
3. Mr. Curtin  enquired whether there was any possibility of reaching a stable agreement between Japan and Australia, and the Prime Minister stated that any such arrangement depended entirely on the Japanese attitude. Her alliance with the Axis and policy in Asia had not given grounds for encouragement. The Prime Minister referred to the discussions which he had had with the Foreign Office, in which it had been suggested, as proposed in the first Singapore report , that a line should be drawn to indicate to Japan the point beyond which she must not proceed in her southern advance.  Discussions with the United States indicated that the Americans were coming round to this point of view, and when Japan clearly understood this she might then be reasonable.
4. Mr. Curtin referred to conversations which he had had with the Japanese Minister in Australia  regarding the possibility of reaching a basis of understanding, and referred to the body of well-disposed opinion in Japan which needed encouragement to sustain it. Mr. Curtin stated that, in accordance with the request of Sir John Latham  at his meeting with the Council before departure for Tokyo , he had also corresponded with him. In response to an enquiry by Mr. Curtin it was agreed that there was no objection to continuing with his discussions with the Japanese Minister.