In my last report  I mentioned some indications which showed that a Japanese consulate was likely to be established in the near future. On September 19th I saw a radiogram from Japan to Segawa, the Japanese director of SAPT , in which it was stated that a Japanese consul would be arriving in Dilli in mid October next.
Another message to Kawabuti, the senior Dai Nippon Airways' employee, stated that another flight was to be made from Palau to Dilli on 11th October, and that the aircraft would bring a total of sixteen persons including the crew which is normally seven.
This information was transmitted to you by radio via Darwin a.m.
Saturday, September 20th. 
Last Saturday, September 20th, a message in clear arrived from the Portuguese Foreign Office for the Governor  stating that the Japanese consul would be Tokitaro Kuroki and asked whether there was any objection to this appointment. Assuming that there was at least some British objection to a Japanese consulate in Dilli, I called upon the Governor this morning to ask for any information which he felt disposed to give for transmission to you. A rumour was already current that a Japanese consul was to be appointed, and I therefore had an excuse to broach the subject without disclosing the information which I had obtained from the radio station.
The Governor was absent in Ban Cau when he first heard the rumour.
All rumours, whether well founded or not, travel with amazing rapidity in this country, as gossip is the main recreation. In view of the rumour the Governor returned to Dilli, two or three days earlier than he had originally intended. At least he told me this, and I have no reason to disbelieve him. There was a cypher message from Lisbon awaiting him, and this gave the first information that a Japanese consul was to be appointed. The Japanese, of course, knew well ahead of the Governor.
The Governor, in reply to this communication, said that he did not see any reason why a Japanese consul was necessary in such a small place as Dilli. His next advice was that giving the name, and asking for any objections, but as he said, I cannot raise any objection to a name only. I informed him that the British Government would not receive the appointment with any pleasure, and that I was surprised at the Lisbon Government giving way to the Japanese after resisting the appointment for quite a long time. The Governor then expressed the opinion that Japanese pressure on Macao had probably influenced the Lisbon authorities.
I have informed the British Consul General at Batavia  that a Japanese consul is expected to arrive in Dilli in mid October next. This letter went by hand four days ago.
It would appear that the Japanese have stolen a march on us and that the only reasonable counter measure is to appoint a British consular officer, senior in status to the Japanese. The Portuguese are apt to judge nationalities by appearance, and the Japanese do not begrudge expenditure in any of their interests here. The Japanese consul will have a fine residence, modern motor car, and will no doubt do a good deal of entertaining. All these things make a great impression on the Portuguese, and if British interests are to be maintained a senior consular officer with staff will be required to maintain prestige. Preferably an officer who can converse in Japanese and at least in French with the Portuguese.
During the whole time I have been here I have been very diffident about discussing political questions with the Governor, as I have no status for so doing. In fact I have far overstepped my functions so far as the Portuguese authorities are concerned, but when a Japanese consul is in residence, I really feel that I will be unable to deal with any so called diplomatic matters. In fact the position in Portuguese Timor may be now bluntly summarised into the following alternatives; either British interests are to fade because of Japanese commercial and political status, or our interests are to be maintained and increased by uneconomical commercial purchases, and high political representation.
This evening I learnt that the Japanese have received authority to purchase the house already mentioned. I also ascertained from commercial radiograms that the Japanese wish to buy practically anything which Timor can supply, even to such unimportant items as salt, maize, sandalwood and very small parcels of rubber. These purchases are no doubt being made in an endeavour to level an adverse trade balance, but nevertheless they show that nothing is too small for the Japanese to buy.
With the arrival of a Japanese consul, the extent of Japanese influence here will comprise:-
Full diplomatic representation by a consul, living in probably the best house in the country, and with unlimited funds for personal expenses, entertainment, and the upholding of national prestige.
Complete control of external trade so far as odd products are concerned. Such products being those which most other countries would not buy; and a fair proportion of the main export of coffee through the Japanese interest in SAPT.
A superfluous staff of experts, nominally employees of Dai Nippon Airways. I say nominally, because there has been a request from Japan to Kawabuti asking for recommendations for the promotion of certain members of his staff, and such request savours more of military procedure than commercial.
Against this influence, exerted through no less than twelve permanent residents, the consul, and the bunch of officials expected in the flying boat already mentioned, we have myself, a technical aviation expert masquerading as a general Government representative, and Whittaker, a naval intelligence officer, masquerading as a civil aviation officer.
The position as now existing is impossible so far as opposition to Japanese penetration is concerned, and the underhand system of gleaning news and intelligence by unauthorised perusal of radiograms leaves very much to be desired. We must accept the fact that Japanese penetration in Timor cannot be satisfactorily prevented with the means now available. I am thoroughly disgusted with the existing situation; I receive no advice of any political or trade developments concerning Portugal and her colonies, and merely act here as a flying boat control officer, and an unofficial and very minor representative of the Government of the Commonwealth.
I am now convinced that there is nothing more which I can do to minimise effectively the progress being made by the Japanese in the extension of their southern penetration policy, and I ask that I be relieved at the expiration of the term which I volunteered to serve here. This period expires on 13th. October, i.e. six months, and I would appreciate advice by signal of the date when a relief may be expected.