D1243, 1244, 1245 [1] and your D1395, [2] Future of Japan.

We now have had opportunity to study the outline of the State
Department's view on policy towards Japan and also the comments of
the Foreign Office. We regret that a premature announcement was
made on the terms whilst they were under discussion and before the
views of Australia had been expressed in a matter of primary
interest to her.

We again must make it clear that we expect to participate fully at
all stages in Allied consultations and machinery affecting the
future of Japan, viz., formulation of policies, drafting of
armistice terms, signature of the armistice, definition of methods
of control and machinery of control. The problem of co-ordination
of policy and of control is crucial. In our view these cable
communications are no substitute for personal round table
consultation of principals who are entitled to speak and these
views are in that tenor preliminary.

We are in agreement with the broad objectives stated in D.1244,
assuming (4) to include elimination of militaristic elements and
encouragement of democratic tendencies. We would, however, wish to
include and secure United Nations recognition of an additional
objective, viz.: fostering of internal economic, social and
political conditions conducive to peaceful development of Japan.

Unless this is accepted as the desirable direction future Japanese
evolution we fear that objectives (3), (4) and (5) would be
achieved only temporarily if at all.

Our general view is that the elimination of Japanese militarism
and its constant threat to Pacific security involves radical
changes in Japan's social, political and economic pattern.

The roots of Japanese militarism are embedded in the totalitarian
political economic and social system built up over the past
seventy years by Japan's ruling groups. Superficial changes in
governmental machinery and external trade would not suffice and
their imposition during a relatively short period of foreign
control would only provoke a nationalistic reaction without
removing the influences chiefly responsible for Japan's aggressive
policies. We realise that a radical policy of direct intervention
in domestic affairs will be useless unless under-taken with
determination and sustained until a democratic and popular regime
is fully established. This would probably involve a considerable
period of occupation and the danger that the powers concerned
would weary of the task is real. This danger, however, must be
weighed against the danger, which we also believe to be real, of a
revival of Japanese chauvinism and aggression, if the main
features of Japan's social, political and economic life are left
substantially unchanged. In short, we believe far-reaching
occupation and Allied military government are essential to
complete the work and sacrifice of countless Allied lives in the
cause of final victory over Japanese militarism. We fear that the
occupation of key points only (if this is the meaning of Potsdam
Declaration) would amount merely to token control and would not
suffice to deal with underground and subversive elements nor would
it permit of the proper supervision of internal affairs. Effective
occupation and control will require large numbers of civil affairs
personnel upon whose training and purposiveness much will depend.

The fundamental requirement, however, is a determined and
sustained will on the part of the Allied nations. It might well be
found, nevertheless, that such a policy applied vigorously in the
early stages would produce promising conditions in a relatively
short period. In any case it should be a principle that controls
would be modified and withdrawn as soon as there were reasonable
prospects of successful conduct of affairs by Japanese. The
success of any controls will in our view depend on the extent to
which Japanese participation is secured. This is a point to which
we feel greater attention might have been given by the State
Department.

Economic policies, we feel, should be guided by the general aim of
fostering a Japanese society capable of living in peace. The
depressed conditions of the agricultural population and industrial
workers with consequent low consumption standards and limited
domestic demand was largely responsible for the intense pressure
for exports characteristic of Japanese industry. Agricultural
poverty assured large supplies of cheap industrial labour with
considerable productive power but low standards of living. These
conditions resulted in the drive to secure markets which was an
important element in Japan's territorial ambitions. (The same
conditions provided large supplies of military manpower.) In turn
there came an over-emphasis on heavy industries as war potential.

It is vitally necessary that every endeavour be made to correct
this distortion of the Japanese economy. Policies should therefore
include improvement of the economic and social position of the
agricultural population and the fostering of trades union and
other movements aiming at raising standards of living.

Subject to this general policy, our views on the immediate control
of Japanese industry are as follows:-

(1) Economic disarmament covering all industry;

(2) Allied control of industry (including ship-building) with
emphasis on restoration of light industries;

(3) Allied control of Japanese import and export trade with a view
to fostering growth of essential consumer goods industries and
giving effect to Allied reparations policy, having in mind also
Japan's losses of overseas territory and the need to fit Japanese
export trade into the postwar network of international economic
relations;

(4) Reparations to be paid in kind as the Allies may determine.

We are mindful of the fact that Japan should not be allowed
unrestricted economic expansion while the Allies carry the heavy
burden of security. On the other hand we do not wish to prejudice
the promotion of reforms by permitting the existence of mass
unemployment and economic instability. We are utterly opposed to
retention by the Zaibatsu of their monopoly of industry.

In regard to political objectives we are of course aware of the
difficulty of obtaining precise agreement between the major Allied
powers immediately concerned. For our part we are in agreement
with the general statement in the United States draft (paragraph
3). [3] In the long run the best hope of success lies in
encouraging popular influence on government in Japan. Essentially
the task of replacing the domination of militarists, Zaibatsu and
bureaucracy with a system of government responsive to popular
needs is one for the Japanese people themselves. While it would be
false to imagine that genuinely democratic forces in Japan will
easily assert themselves after defeat it is in our view essential
that democratic tendencies should be actively encouraged with a
view to the emergence of a Japanese state capable ultimately of
peaceful co-operation with the United Nations.

We support the proposal that in the initial stages the Supreme
Allied Commander should assume complete authority. The Diet and
all Japanese policy-making bodies should be suspended. We agree
also with the principle that restrictions on the exercise of civil
functions by Japanese should be relaxed as it becomes evident that
this will promote the general policies outlined above. We agree
with the United States proposals that there should be three
periods of-
(A) Severe military government;

(B) Close surveillance;

(C) Easing off of all controls.

The encouragement of Japanese activity in local government would
be consistent with our attitude. Dissolution of all political
parties is necessary but we would countenance new parties whose
objects were compatible with the purposes of the United Nations.

Measures for public information and supervision of education
should be compatible with the emergence of expression of public
opinion.

Civil liberties would require legislative definition and
protection by the military government. The judicial and police
system contain obnoxious features which cannot be countenanced.

The Principle of freedom of worship raises the difficult question
of State Shinto with its Emperor-worship and its militaristic
associations.

We are not clear as to the position of the Emperor under the
American proposals, i.e. whether it is proposed that the Emperor
should be set aside completely or whether despite the suspension
of his constitutional powers he might be used as a means of
obtaining Japanese obedience to the decisions of the Military
Government. The Foreign Office appears to favour retention of the
Emperor's constitutional powers. We would insist that the Emperor,
as head of the State and Commander-in-Chief of the Armed Forces,
should be held responsible for Japan's acts of aggression and war
crimes and would thus demand his removal. The future of the
Imperial throne would be decided by the Japanese people as soon as
conditions permit a freely determined decision. Political
movements aiming at the abolition of the institution of the
Emperor or his reduction to a constitutional Head of the State to
be allowed freedom of organisation and propaganda.

Other points on which we are in a position to comment at present
are as follows:-

(1) We would be irreconcilably opposed to the use in any capacity
by the Allied Military Government of Japanese who have been
prominent in any militaristic or fascistic movements or
activities;

(2) Surrender terms to be signed by Emperor, military and Naval
chiefs and principal Cabinet Ministers;

(3) Complete destruction or transfer of remnants of Japanese Navy,
Air Force and military installations and material and surrender of
Merchant Navy to Allied Nations, with proper share for Australia;

(4) Demobilisation of all service personnel, abolition of
conscription, dissolution of Kempeitai (gendarmerie) and Tokkoka
(Secret police), patriotic and secret societies and ex-
servicemen's associations and prohibition of manufacture and
carrying of weapons;

(5) There should be provisions safeguarding Allied Prisoners of
War;

(6) There should be provisions regarding War Criminals including
the Emperor;

(7) There should be provisions concerning Japanese Prisoners of
War.