REDUCTION OF JAPANESE INDUSTRIAL WAR POTENTIAL
I desire to acknowledge receipt of your memo. of the 6th inst., reference ER.46/13/17, to which was attached copy of paper FEC-084 submitted to the Far Eastern Commission by the U.S. member on the above subject. The views of this Department  as to the adequacy or otherwise of the policy proposed are requested.
2. This Department agrees with the proposed treatment of primary war facilities as set out in paragraph 2 of the paper, but we think closer study should be given to the possible effects of the proposals relating to secondary war industries and supporting industries, particularly the possible effects of such proposals on countries other than Japan and more particularly on Australia.
3. I think there is a danger to Australia in the pursuing of a policy of reduction of Japanese industries too far. Consideration needs to be given to the problem of what is to be done with people displaced from such reduced industries, plus demobilized troops, returning Japanese colonists, etc. The great bulk of them obviously have to be employed in some form of manufacturing industry. It is not thought that primary production could absorb many. A large unemployed population in Japan would soon become an Allied problem of first magnitude.
4. Manufactures and export are vital to Japan. Her population cannot be supported other-wise. Japan was a good customer of Australia before the war, particularly for wool, and we would hope might become so again in the near future. To do this, however, it is obvious that we have to take goods from her and she will not be able to buy from Australia if she is unable to afford to do so by reason of her poverty.
5. I feel considerable misgiving at the proposals. Whilst it is highly desirable to prevent a resurgence of a warlike Japan, it is no use shutting our eyes to the fact that Japan is a heavily over- populated country relying for its existence very largely on secondary industry. A way has to be found of allowing the population to live and it is eminently desirable to endeavour to do that now instead of at the end of the occupation period, when the damage might be irreparable. I think that a much broader view of the whole problem has to be taken than that set out in the Far Eastern Commission paper under review, otherwise the consequences to Australia in the future might be extremely serious. America can probably with impunity pursue a harsh and repressive policy towards Japan. Australia, however, is in a rather different situation. We should consider what might be our position when the occupation period is over. We might be left to face the accumulated bitterness of Japan by ourselves.
F. A. O'CONNOR