I did an Executive Council Meeting early this morning.

We then had a Policy Cabinet meeting, the greater part of which
was taken up by my putting through a Cabinet memorandum on our
attitude towards Japan, in which I proposed that we should take a
more civilised attitude towards Japan for the future. It was
agreed to without any appreciable dissent.

It was quite a good discussion of about 2 1/2 hours, during which
I said that the situation of Japan in the world was not an
enviable one. I believe that Japan's action in the Second World
War was brought about by the two great internal pressures-(1) the
fact that they were not (and are not) an emigrating nation, which
is reflected in the fact that well under 1 million Japanese have
left the shores of Japan for any other country in all their
history. Their very large net annual population increase in
consequence creates a progressively greater internal population
pressure; (2) the fact that whenever they get their industries in
such shape that they can export cheap goods to the outside world,
the world's customs tariffs rise against them, thus neutralising
the employment of their population in secondary industries.

The combination of the above two matters (population pressure and
lack of markets) is likely to be a continuing one-and will build
up into the same sort of pressures in the future as were
instrumental in causing the explosion of the last war.

I told them of my conversation with Yoshida in Tokyo three years
ago [1], in which he said that he could not see more than five
years into the future, so far as the economy of Japan was
concerned. He said that his experts told him that, by the use of
modern agricultural methods, probably another 5 million Japanese
could be accommodated in the Japanese Islands, but that beyond
five years he could not see.

Cabinet agreed that it was necessary for Australia to do whatever
we could to help enable the Japanese create a viable economy-that
we had to live with them in the world and treat them in a more
civilised way than in the past.

I dealt with the difference between pre-war Japan (in possession
of Korea and Manchuria) and post-war Japan (without any Chinese
mainland possessions, and with reduced homeland area-and with, at
present, an unstable economy). I referred to their very bad and
worsening overseas balance of trade. This led naturally on to the
inevitable tendency that must arise for Japan to come to
commercial arrangement with Communist China, both to secure a
source of raw materials and to get a large market for her
(Japanese) cheap goods, once they were able to get their cost
structure down.

There was no real opposition to the general proposition in the
Cabinet memorandum that I put up-that we should treat Japan in a
more civilised way.

John McEwen supported it from the trade point of view, by reason
of the advantage that would accrue to us by an improvement in the
Japanese international trading position, which would put her in
possession of more overseas funds and so help her to be able to
continue to buy our wool. He said that if Japan's overseas funds
were still further depleted, they would inevitably become much
less competitive at our wool auctions, which might easily have a
substantial effect on our annual wool cheque. Against this there
is to be offset the much smaller consideration that Japan would
probably take some part of our market in free Asia away from us-
but that this was a much lesser disability than that of (say) a
10% drop in our wool prices, by lack of Japanese competition.

I brought up the subject of Japan entering the Colombo Plan-and it
was generally agreed that this would be a good move to start off
our 'new deal' towards Japan. I said that I would, of course,
endeavour to make as much of this (by way of a deal) with the
Japanese as I could, probably in connection with Japanese
compensation to our ex-prisoners-of-war.

I raised briefly the question of Japanese inspection of their war
graves in New Guinea and mentioned the fact that the Australian
Administrator of New Guinea is reported to have said that he would
need twelve months' notice before any such Japanese team was
allowed to come to New Guinea. It was generally agreed that twelve
months was very unnecessarily long.