CANBERRA

I am enclosing the following papers on Japan and on
Australian/Japanese relations, which you might find helpful:

Australian Policy Towards Japan (Departmental) [1]

Australian Economic Relations with Japan (Departmental) [2]

Australian Policy Towards Japan with Appendices A, B, C, D, E, F,
G, I, J, K, L, M (Cabinet Submission 28/[7]/54) [3]

Digest of Despatches J1, Japan: Retrospect, E.R. Walker [4]

Digest of Despatches J2, Japan's Economic Situation, E.R. Walker
Digest of Despatches J3, The Rearming of Japan, E.R. Walker
Digest of Despatches J4, Japan's Foreign Policy, E.R. Walker
Digest of Despatches J5, The Political Outlook, E.R. Walker.

The following are some of the things which you might find it
useful to watch in Japan. Perhaps the most important is the
development of anti-American feeling and a trend towards
neutralism. Despatches from our posts in Manila and Karachi have
recently described the growth of anti-American reaction in the
Philippines and Pakistan, and we have the impression that the same
influences are at work in Thailand. Walker has touched on the
problem of anti-American feeling in Japan in some of his
despatches describing Japanese/American negotiations concerning
the retention of American bases in Japan. The Japanese people were
certainly a model of good behaviour under the Allied Occupation
but they are now showing some signs of irritation over continued
manifestations of American influence, such as the presence of
uniformed soldiers.

The danger of anti-American feeling is the impetus it gives to
neutralism. We have not heard that neutralism is a strong force in
Japan yet but perhaps it could develop. If it did, it would
probably be much more friendlily disposed towards the Western
democracies than Indian neutralism for example. The Japanese are
far removed in temperament from the Indians, whom they rather
despise. Japanese pragmatism and common sense would probably save
them from the philosophical woolliness of Indian thinking.

The possible development of a Japanese brand of neutralism, based
on Japan's own claim to leadership in Asia and the demand for a
foreign policy more completely independent of the United States,
is something which we should watch for.

Such a development might be linked to the strong attraction which
mainland China still has for Japan. While the Japanese have a
deep-seated distrust of the U.S.S.R., they believe that they can
get on with the Chinese despite the new regime in Peking. There
have been a number of Japanese cultural and at least one trade
mission to Communist China and the new China is widely publicised
in Japan in generally favourable terms.

One main drive towards closer relations between Japan and China
comes from the business men who purport to see vast trade
opportunities with the Asian mainland. These hopes may well be
illusory in view of the changed pattern of the Chinese economy but

the fact is that numbers of influential Japanese wish to find out
for themselves what can be done in the way of closer trade links
with China.

It may well be that the Japanese economic, political and social
structure is firmly enough based to withstand the sort of
pressures which might develop from a closer association of Japan
with Communist China. This is something on which your views would
be helpful, as it seems almost inevitable that such close
relations will in fact come about in the coming years.

The Japanese to some extent hold the United States responsible for
their present policy of recognition of the Chinese Nationalist
Government on Formosa. You may be asked by the Japanese what
Australian policy is towards Formosa and the Chinese mainland with
a view to the Japanese seeking to develop what they would call a
more 'independent' foreign policy.

I doubt whether the question of Japanese rearmament, which was a
matter of such concern to Australia in the post-war years, will
come to a head in Japan for some time yet. A clear two-thirds
majority of the two Houses of the Diet would be required before a
constitutional amendment could be put before the people for a
referendum. It will be hard to obtain such a majority in the
present Diet and the issue is a real one in Japan. Anti-war
sentiment is strong amongst women and the class of men who came to
maturity in the war period. It is shared by such conservatives as
Yoshida, the former Prime Minister, who suffered at the hands of
the Japanese Army.

In the meantime the ad hoc situation is being met, perhaps rather
illogically, by the Japanese Self Defence Corps which, in
conjunction with the American Forces, provides a nucleus for home
defence. On the question of constitutional change and the re-
creation of Japanese Armed Forces, the Americans and ourselves
should be chary before becoming involved in what is a live
domestic issue, despite its importance to us in relation to
Pacific defence.

We have not been conscious that the Japanese are looking to South
East Asia for a renewal of their sphere of political influence.

The Japanese would certainly like to trade more with the countries
of South East Asia and send to them some of their surplus
technical skill. They feel that those countries are over
suspicious of Japan and too demanding in their reparations
requirements. As you know, Australia sponsored Japan's entry into
the Colombo Plan in the belief that Japan could in fact contribute
something to the development of South and South East Asia.

In Australia and elsewhere there are periodical references to the
failure of democracy to strike deep roots in Japan. I do not think
we need be too cynical about this. Certainly some of the reforms
of the Occupation did not go very deep. We have seen a regroupment
of the banks and big industries take place despite the MacArthur
anti-combination laws. The re-cartelisation of Japanese banking
and industry has been to some degree inevitable and is not
necessarily a bad thing entirely in itself. The objections to the
[pre]-war economic structure in Japan lay rather in the unfair
trade practices carried on by big business and by the inter-
relation between big business and the Japanese imperialists.

Other democratic reforms seem to have a firm hold in Japan. The
Parliamentary system works. Elections are held in what can be
termed a fairly normal way, and the Diet Committees work in the
open and are subject to a good deal of public interest and
criticism. Perhaps the Occupation decentralisation of provincial
and local government went too far to suit a crowded small country
like Japan. However, there seems to be a real and healthy public
interest in the working of political affairs at all levels. We
have not seen much to substantiate reports of the rebirth of the
old nationalist societies but you may care to make your own
enquiries about this aspect of modem Japan.

On the question of Australian/Japanese relations, we have really
narrowed down the controversial issues to three namely, trade
relations, pearl fishing, parole for minor war criminals. On
trade, we have to some extent satisfied the Japanese by
liberalising our import licensing administration to the extent
that Japanese imports into Australia have shown a marked increase.

This, of course, is their main concern and they have spoken less
to us recently about the need for a trade agreement or for a
granting of most-favoured-nation customs treatment to Japanese
imports. I am not sure that we can avoid in the long run making
some more substantial gesture to the Japanese in the direction of
at least limited most-favoured-nation treatment but at present our
trade talks are not directed to this end.

On pearl fishing, we have two problems-the handling of the case
before the International Court of Justice, on which the Solicitor-
General seems to be adopting rather a go-slow tactic; and the
immediate yearly task of working out a regime under which the
Japanese can pearl fish in waters off Australia to the extent that
they can be allowed to take a reasonable catch. This raises
internal political problems. The subject of war criminals is dealt
with in the attached papers. What we want to guard against is a
position in which we find ourselves as the only country holding
substantial numbers of Japanese war criminals.

On the whole I believe that the Japanese have been rather
favourably impressed by the efforts which Australia has made to
resolve outstanding difficulties. The Japanese come to Australia
with some feeling of apprehension arising from their guilty
recollections of their war-time excesses. Usually they depart
feeling that they have been made more welcome in Australia than in
any Asian country. Their Embassy in Canberra has been staffed by
competent officials and headed by most competent Ambassadors. We
have good working relations with them here and I should think that
you should also be able to establish good working relations with
the Japanese Government in Tokyo. If you find that this assessment
has been over optimistic, please let us know.