Your 266. Establishment of exchange rate in Japan. Your views on undesirability of referring question of exchange rate to F.E.C.
have been noted  but it is felt that disadvantages could be avoided and, at same time, status of F.E.C. upheld, if discussion in F.E.C. were confined to broad principles involved. In this connection our F.E.C. representative was recently advised, in informal discussions with State Department officials, that State Department and U.S. Treasury are at present working on a paper setting out general principles and that paper has been discussed with representatives of SCAP in Washington. The State Department has indicated that in last analysis the actual rate must be fixed by SCAP (and in this we concur) but can see no objections to F.E.C. determining broad principles in accordance with which exchange rate should be determined. State Department officials stated that paper will probably be placed before F.E.C. when all interested U.S. agencies have agreed on principles contained in it. We consider that inclination on part of United States to refer question to F.E.C. should be encouraged. You will also have seen that document T-033 (extracts from verbatim minutes of Allied Council for Japan was on I.A.T.B. agenda for 16th December.
2. We have sighted telegram 282 from New Zealand  but do not favour proposal for setting up expert committee as we think SCAP would regard the matter as solely for his implementation. Informal consultation with SCAP on actual rate at appropriate stage would seem to us however to be both practicable and desirable.