Your telegram 25. [1] Trade with Japan.

1. We are glad to learn that your thoughts are running on similar
lines to our own.

2. We fully agree with your view that comprehensive sterling
agreement would be
preferable to sectional bilateral arrangements and if we had known
of your intentions it might have been practicable for us to put
forward our proposals as part of a wider sterling area approach.

3. However, although our proposals have been put forward on a
bilateral basis they could readily be merged in any wider
arrangement that may subsequently be negotiated with SCAP and in
the circumstances we feel it best to leave our offer on its
present basis. We are reinforced in this decision by the belief
that it may be possible to conclude our limited arrangement with
SCAP almost immediately, whereas overall sterling area
negotiations would necessarily take some time.

4. We are instructing our representatives in Tokyo-
(a) to advise SCAP that we contemplate and would welcome the
merging of any bilateral arrangement covering trade between
Australia and Japan with a wider sterling area arrangement as soon
as practicable, and
(b) to keep in close touch with the United Kingdom Liaison Mission
with regard to any developments in the wider negotiations.