[2] 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. [3] 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. [4] 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 [5], 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. [6]
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. [7]