in Japan have become quicker and stronger during the last week.
1. S.C.A.P. and conservative forces in Japan are drawing closer together and conservative forces are showing renewed confidence.
By 'conservative forces' I mean the Liberal and Progressive parties, industrial and commercial leaders and senior officials of the Japanese Foreign Office.
(a) These conservative forces were greatly cheered by Truman's speech.  They are reliably reported to be exploring the possibilities of a United States loan to the Japanese Government to combat Communism here. The following comment by a senior Foreign Office official has been reliably reported to me-'We Japanese realized the menace of Communism 15 years ago and we have been fighting the Communists in China and Japan ever since. It is gratifying to know that the American Government has, at last, seen the need to fight them too.' (b) MacArthur's Press Club statement has been hailed with delight by the conservative forces and the press.  On 19th March, the Nippon Times ran a 4 column headline: 'Grateful Nation Hails S.C.A.P. He opposes stern reparations, favours private foreign trade'. In the Nippon Times of 20th March, Yoshida is reported as saying that MacArthur's statement is 'Eloquent testimony of his accurate analysis and wide knowledge of the existing conditions in Japan and his thorough understanding and good will for the Japanese people'. The Nippon Times editorial of 20th March states, inter alia, 'General MacArthur's statement that work of military occupation is nearing completion attests most strongly to the brilliant success of his own work. The fact that he is able to say that demilitarisation of Japan is now virtually complete and that foundations have largely been laid for the political and social democratisation of Japan proves that it is a tremendous feat he has been able to accomplish in the relatively brief period of a year and a half of occupation. His recommendation for an immediate solution of the reparations problem and the early conclusion of formal peace shows his practical comprehension of the economic plight which constitutes the immediate alarming threat to the future of Japan and demonstrates his masterly understanding of the one sure way in which this menacing situation can be averted. The solution which he envisages means early restoration of Japan to normal international intercourse. Finally, his recommendation that the guidance of Japan after the peace treaty be entrusted to the United Nations emphasizes his lofty idealism. General MacArthur's recent statement to the press has demonstrated anew, if any further demonstration were needed, the unprecedented historical significance of this great personage.' (c) Atcheson's statement at yesterday's Council meeting gave great prominence to the anxiety the American people were feeling about trade union activity in Japan. Atcheson did not indicate whether the American people felt any anxiety about trades union and economic policy of the Japanese Government or of conservative groups here. His statement was essentially a warning to trades unionists. There was no warning to the Japanese Government, to farmers misusing their rice or to fisherman who recently refused to fish as a protest against fixed prices.
(d) There has recently been a tightening of S.C.A.P. censorship of left publications in Japan. I am reliably informed that report of a symposium by moderate professors on the subject 'How can we achieve a bloodless revolution' was denied publication. Serious periodicals which seek to publish non-communist radical comments on the economic and social situation are having publication held up from 4 to 6 weeks while S.C.A.P. officials deliberate on their censorship.
(e) I am reliably informed that counter intelligence available to S.C.A.P. which, in the early months of the occupation concerned itself mainly with investigation of Japanese militarist activities, is now almost wholly preoccupied with investigating political activity of Communists or suspected Communists.
(f) There have been several instances of prohibition by S.C.A.P.
officials of local and 'industrial' strikes on grounds that such strikes would violate General MacArthur's order of 31st January prohibiting general strikes.
(g) The radical Wada , who was recently appointed Director General of the Economic Stabilisation Board, has been very quietly replaced by Sotaro Takase. Wada had planned with the aid of a group of able young economists to launch a firm policy to control inflation and essential raw materials. The Liberal Party became alarmed at Wada's plans and put pressure on him to abandon them.
He consequently resigned. His successor Takase is reputed to have the confidence of the Liberal Party and industrial circles.
2. I believe that MacArthur is attempting to mould Allied public opinion view, on basic issues that should be decided at the Peace Conference. In so far as he succeeds, it may be difficult for Allied Representatives to reverse the trends he is now initiating.
He is trying to write Peace Treaty before the Peace Conference meets.
Dean Acheson's comment yesterday on MacArthur's press club statements appears to have been a firm if restrained rebuke.  Acheson's comment is not published this morning in the 'Stars and Stripes' or the 'Nippon Times' though both papers carry Acheson's comments on European questions. Since yesterday afternoon the U.P., which works in closest touch with General Headquarters, has sought comments from Canadian, Dutch and other missions here which might be expected to support MacArthur's statement. It has sought no comment from me.
3. I believe that MacArthur has become increasingly anxious about the trend of events in Japan and is eager to avoid being himself associated with threatening economic failures here. He feels that until now he has been able to present to the world a worthy picture of an occupation that has been fabulously successful. He is anxious to be personally dissociated from the reversal which appears imminent. As difficulties here thicken he feels the impulse to place the responsibility for these difficulties on Allied Governments which are engaging in the 'economic strangulation of Japan'.
4. May I venture to suggest that you, on behalf of the British Commonwealth or, at least, on behalf of Australia, might consider it desirable to make a statement as soon as possible in consequence of the reservations you feel about the present trend of United States policy in Japan and about MacArthur's picture of actual situation. I am afraid that otherwise we may lose our position by default. May I suggest that your statement might include the following points:
(a) If we feel some anxiety about the present trend in Japan it is not because MacArthur has done so little but because he claims so much. (For example, we notice that the programme for offers of Zaibatsu and for land reform has hardly yet begun and we cannot see how Japan can be regarded as a democratic country until these basic social reforms have been carried out.) (b) While we fully appreciate the degree to which the Japanese Government and people have complied with S.C.A.P's directives, we feel, as a result of our experiences since 1941, that we can take no risks. We desire an early peace treaty yet insist that there must be not merely guidance but effective control of Japan for a generation. The particular means by which this control is exercised and the extent, if any, to which it would involve military occupation of home islands is a question which should be decided at Peace Conference.