Reference my telegram 1013. 
To sum up position as I see it. This is first time after many months of discussion that we (i.e. B.C.D.  countries as apart from U.S.) have had anything tangible to work on. We are faced with a Japanese proposal that is unacceptable in itself but which with certain amount of modification might be acceptable to Japan and to U.S., the British Empire and the Netherlands.
My personal feeling (for what it is worth) is that, if these negotiations fail, war is not far off. Although I hope and believe United States would be actively at war as soon as Japan were to make first belligerent move no one can be certain of this because only Congress can declare war, and Congress is unpredictable. If present negotiations fail Japan may declare war on United States and so take positive decision out of hands of Congress but this may or may not happen. Even though all discussions have been between United States and Japan, and though United States has been played up in Japanese press as country that has thrown herself across track of Japanese expansive ambitions, Japan might quite well avoid direct attack on United States interests in Far East and confine herself to attack on British or Dutch interests or on Thailand, in which case it might be some months before United States was at war, if then.
There is therefore at least a reasonable risk that we (B.C.D.
countries) may have to bear in first place, at least, the brunt of Japanese attack if these present negotiations fail. Therefore we should, I submit, be allowed a considerable say in framing of redraft of this present Japanese proposal.
If clauses 2, 4 and 5 are to be radically amended as suggested by Secretary of State  then I believe that, in an endeavour to offset our amendments to their draft, we will have to 'dress up' our redraft to make it look as attractive as possible by inclusion of as many small temporary concessions as we can think of that will help Japanese to save face whilst at the same time not give them substantial advantages if Japan eventually goes to war with us.
It seems reasonable to assume that in putting forward the present proposals Japan showed she at least hesitates in her present state to embark upon a war with United States and British countries and Dutch and wishes to play for time: that is to say she wishes to postpone an irrevocable decision until a more favourable Axis situation may develop in Russia, the Mediterranean or Europe, but at the same time to at least stop drainage on her supplies of essential commodities. Her insistence on the lifting of economic restrictions supports this latter point. If we accept proposals after substantial amendment it would presumably be because we too are playing for time and feel we are likely to be in a more advantageous position should Japan move later. The balance between these advantages and disadvantages is difficult to determine. I think it is important, however, to keep in mind that if we feel time is on our side Japan also feels time runs in her favour, if she can get alleviation of existing economic restrictions.
The British Ambassador  has expressed to me the view that Japan's willingness to put forward proposals of this sort may mean that she is in bad shape, and cannot contemplate [the test of] war with United States and British Empire. However, he does not [press] this and for myself I tend to agree with the Secretary of State, that is to say I tend to [take] the present position seriously and believe we cannot afford to gamble on Japan not being ready to go to war if present negotiations fail.
The real danger at present seems to be from extremist element in Japan going off the deep end and, without counting cost, [plunging] us all into war rather than attempt to retrace their steps. Suicide rather than surrender. If we can, through proposals such as are now under discussion, give the Moderates in Japan something to put forward as an argument I recommend most strongly that we should do so.
I would be glad to have your instructions as soon as possible as I believe time element to be most important.