Trade between Australia and Japan

I desire to advise that on Saturday last, I was invited to attend
at the Foreign Office 'to discuss matters relating to trade
between Australia and Japan'. On accepting this invitation, I was
met by Mr T. Kitahara, a senior officer of the Economic Affairs
Bureau, and his assistant, Mr Okiwara.

Mr Kitahara said that the Government was at present engaged in
preparations for the Budget for the forthcoming fiscal year
commencing on 1st April. They were very disturbed by the
deteriorating position of Japan's holdings of Sterling and the
continued adverse trade balances which Japan was experiencing with
most countries in the Sterling Area. He produced certain papers
for my inspection and, at my request, supplied me with copies.

These are documents which have been prepared in connection with
discussions between Japanese Government officials and members of
the British Embassy here in connection with negotiations on the
United Kingdom Japanese Sterling Payments Agreement. I am
forwarding copies of these documents, listed as under:

Memo No. 1: Prospects of Sterling Import.

Memo No. 2: Japan's Sterling Holdings as at the end of next March.

Memo No. 3: Japan's prospect of Importation from Sterling Area
during the first half of 1953.

Memo No. 4: Table showing Sterling Balances to Credit of Japan in
relation to Trade with the whole Sterling Area, 1952 to January,
1953.

Much stress was laid on the continued decline in these balances
since June, 1952, and it is estimated that at the end of March,
the balance will stand as low as round 44 million. The suggestion
was made, therefore, by Mr Kitahara, that Japan might find it
necessary in the forthcoming Budget to impose restrictions on
imports from the Sterling Area. His Government was, he said,
unwilling to take this step, but it could be forced upon the
Government if Japan's exports to Sterling Area countries could not
be speedily increased by the removal or modification of import
restrictions in those countries. He said, for example, that it
might be necessary to curtail Japanese buying of Australian wool
and other goods.

I was, of course, entirely non-committal throughout this interview
and simply promised that I would represent the matter to you as
requested. In reply to a question from me, Mr Kitahara said that
the matter had not so far been raised through the Japanese
Ambassador in Australia.

Following upon this interview, I had a talk with Mr N.S. Roberts,
Commercial Minister at the British Embassy, who has been
conducting talks on behalf of the United Kingdom on the Payments
Agreement. Mr Roberts said that similar suggestions had been made
during the discussions as to the possibility of Japan being forced
to impose import restrictions against Sterling imports unless a
better balance could be secured. The talks so far, he told me,
have been mainly exploratory and statistical and, as a point for
discussion, a target of 200 million trade each way per annum had
been suggested. Japan countered with the view that she would need
exports of 230 million to the Sterling Area to be able to finance
imports of 200 million. The reason for this was said to be
Japan's liability for debt payments and other invisibles. The
United Kingdom was not prepared to agree to these figures and
suggested that Japan should explore the possibility of accepting
Sterling from open account countries such as Egypt, Norway,
Sweden, etc.

The matter appears to rest there at the moment and the British
Embassy here has reported the situation back to London for
instructions. I think that the Foreign Office approach to me in
the present instance was probably dictated by newspaper accounts
of statements attributed to the Australian Prime Minister to the
effect that, while there would be relaxation of import
restrictions effective as from April next, these would not cover
dollar or Japanese imports.

The matter is therefore submitted for your information. My
personal opinion is that import restrictions will not be operated
against Australian wool even if some other commodities should be
affected. It does not appear likely that the Japanese woollen
industry could function without imports of Australian wool and,
with regard to quantity, it is interesting to note that this
morning's newspaper carried a statement to the effect that the
Japanese Wool Spinning Industry hopes to import 739,000 bales of
raw wool in the forthcoming fiscal year, and is approaching the
Government for the provision of exchange for that purpose. This
figure is considerably higher than those which were quoted to me
by the leaders of the industry a couple of weeks ago and reported
to you on the 12th February. It would seem, therefore, that the
industry is putting up a maximum figure in the anticipation of it
being reduced by the Government.