On March 21, 1936, the Osaka Mainichi and Tokyo Nichi Nichi, English Edition, published what purported to be the Navy's recommendations to the newly-established Hirota Government for reform of the national administration. Under the heading of "Foreign Policy", the Navy is reported to have suggested the following:

"(1) Establishment of Foreign Policy. Centralization of diplomacy and enhancement of the self-initiative policy through the founding of a national policy of dealing with foreign nations.

(2) Protection of the North and Southern Penetration. As regards Japan's continental development, we should not depend on Asia alone to maintain the life of our nation. We should expect a southward penetration for our national development in the future. But this southward penetration must be carried out by pacific means, rejecting all recourse to force."

On April 17, 1936, the Yomiuri and Miyako newspapers published reports to the effect that the Premier, Mr. Hirota, had decided to abolish the present South Seas Government (which has jurisdiction over the former German islands north of the equator, now being held by Japan under mandate), and to place the islands under the jurisdiction of a bureau in the Formosan Government-General, "as a step in the execution of the so-called 'southward policy'". At the same time it was planned to establish a military government of Formosa and the South Seas Islands, the Governor-General to be an Army or Navy officer and the Vice Governor-General a civilian. According to the Asahi of April 25, 1936, however, Admiral Nagano, the Minister for the Navy, is opposed to the plan of placing the South Seas Islands under the jurisdiction of the Formosan Government General, because, instead of being abolished, the South Seas Government should be strengthened "to promote the Navy's policy of southward advance". The Admiral based his arguments against the incorporation of the South Seas Government into the Formosan Government General on the grounds that there is little economic connection between the South Seas Islands and Formosa, that the people of the two administrations are different racially and could not well be governed by the same administration, and that, as the islands are held under mandate from the League of Nations, they cannot be regarded as an integral part of the territory of Japan, as is Formosa, and cannot be governed under the same system. It does not appear that any decision has as yet been reached upon the question of the future administration of the South Seas Islands.

There appear to be several reasons for the sudden recurrence of propaganda in Japan for a "southward advance". Some observers believe that the Japanese Navy is envious of the success obtained by the Army in promoting Japanese expansion and wishes to earn credit with the nation by itself undertaking new expansion schemes.

With this is bound up the question of budget appropriations. The further afield the Navy extends its activities, the larger the appropriations which will be necessary for naval defense. Other observers believe that the Navy, in advocating a southward advance policy, is primarily in search of an assured supply of petroleum and is planning to obtain supplies eventually in Netherland India. This is the opinion of the Naval Attaché of the Embassy and of the Netherlands Minister to Tokyo, whose remarks will be given later in this report. The First Secretary of the Soviet Embassy in Tokyo, who naturally regards all developments in Japan from the Soviet point of view, believes that the recent advocacy of a southward advance policy is caused by the fact that the advance of the Japanese in northwestern Asia has been halted and cannot be resumed without serious danger of a major war. He points out that General Chiang Kai-shek has moved a part of his troops up into southern Shansi; that the Chinese Communist troops are advancing eastwards through Shensi and Suiyuan, with the slogan of "Down with Japanese Imperialism"; that Outer Mongolia, backed by the Soviet Union, is offering stout resistance to Japanese penetration; and that the Soviet Union can effectively prevent the Japanese Army from encroaching upon Soviet territory. The Japanese Army on the Asiatic continent is thus fairly thoroughly encircled and cannot advance without the risk of a serious war. Consequently the Japanese nation has turned its attention to the south.

While this Embassy cannot subscribe entirely to the thesis that the Japanese nation as a whole has turned its attention to the south, it does appear probable that the Japanese Navy, finding the efforts of the Army on the continent now being fairly consistently thwarted, believes the time ripe to make a move itself and thereby to draw the attention of the nation to the Navy rather than to the Army. It should be understood that there is in Japan a more or less persistent feud between the Army and the Navy, dating back to the days when one was controlled by the Choshu clan and the other by the Satsuma clan. The feud, of course, does not extend to the point where either party would let their quarrels endanger the Empire, but it is not only possible but probable that the Navy, finding that the Army has extended itself to a point where it is likely to involve the country in a war unless it stops, has taken advantage of the situation to show the nation that "Codlin is the friend, not Short". In addition to that, there is no doubt that the Navy wished to extend its sphere of activities to cover the entire western Pacific north of the Equator and to include, if possible, in that sphere a section of the Pacific south of the Equator from which an assured supply of petroleum can be obtained under any circumstances. The present oil situation in Japan,

brought on by the Army's demand that the foreign oil interests carry stocks in the country amounting to six months' supplies, is so uncertain that the Navy undoubtedly will endeavor to find an independent source of supply as soon as possible.

The Embassy has been endeavoring, for some time past, to ascertain exactly what was behind the sudden appearance of propaganda in favor of a "southward advance", what are the objectives of the movement, and what effect the movement will have upon American interests in the Far East and especially in the Philippine Islands. Nothing very definite has yet been learned, but the following summaries of conversations and newspaper articles may serve to throw some light on the question.

On April 25, 1936, General Pabst, the Netherlands Minister to Japan, called on me and stated, in the course of our conversation, that he had telegraphed his Government to the effect that, if conditions in Europe remained in the present state, compelling the British fleet to stay in or near home waters, there was a "fifty-fifty chance" that the Japanese Navy would attempt a "coup de main" within six months, with the objective of taking possession of some part of the Netherlands Indies producing petroleum. The Netherlands Minister, however, is somewhat inclined to take an alarmist view of affairs, and, except for the propaganda in favor of a southward movement, I see nothing to indicate any sudden or drastic move by the Japanese Navy in the near future. I am therefore inclined to discount the Minister's statement.

In a conversation with the First Secretary of the Embassy on April 21, 1936, Admiral Hasegawa, the Vice Minister for the Navy, commented on the "southward advance" policy of the Navy. He said that the policy was largely "newspaper talk" but that the Navy did advocate the extension of Japanese trade to the south. If important trade routes to the islands to the south of Japan were thus established, it would be necessary for the Navy to extend its operations further afield for the purpose of protecting these trade routes. The Navy's policy, however, was purely pacific and implied no threat whatsoever against the Netherlands Indies or the Philippine Islands. It was the erroneous conception of the policy published by the newspapers which had startled various persons.

On April 25, 1936, Mr. Arita, the Minister for Foreign Affairs, received the foreign newspaper correspondents in Tokyo. In the course of the conversation, one of the correspondents asked the Minister to clarify the policy of southward expansion which had been mentioned in the press of Japan. According to the Japan Advertiser of April 26, 1936,

"The Foreign Minister said that he knew that the papers were ascribing an alleged intention of southward expansion to naval circles,

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but he did not know whether they were accurate. He could see nothing beyond economic expansion, for Japan has no ulterior ambitions."

On April 30, 1936, Mr. Shigeru Yoshida, recently appointed Japanese Ambassador to Great Britain, called and stated, in the course of our conversation, that the population problem in Japan was becoming increasingly difficult and that foreign countries should realize the seriousness of the situation and endeavor to help Japan in finding an adequate outlet. He said that it was principally a matter of finding outlets for Japan's trade, with opportunity for Japanese subjects to follow that trade. Upon being asked, he said that it meant peaceful penetration. Again upon being asked, he said that he thought that the "blue-water school" (i. e., the school advocating expansion to the south) would win out eventually over the "continental school".

The Embassy will endeavor to obtain further clarification of this alleged policy of the Japanese Navy.63

Respectfully yours,

893.515/1096

JOSEPH C. GREW

Memorandum by the Ambassador in China (Johnson) of a
Conversation With Sir Frederick Leith-Ross 64

PEIPING, April 30, 1936.

Sir Frederick asked me whether I thought there was any likelihood of a war between Japan and China. With regard to Japan and Russia he expressed the opinion that the Japanese had probably decided to lay off, as the Russians were too well prepared. I told Sir Frederick that I found it very difficult to believe that there would be war between Japan and China. I said that of course it was always possible that the Chinese might be forced into some kind of a conflict, but that I thought they would take an awful lot of provocation before this would happen. I said that I had heard a great deal about the possibility of trouble when I was in Nanking in February, but that I did not put much stock in this. I knew that the Chinese were spending a good deal of money upon armaments.

Sir Frederick said that he thought this large expenditure of sums on armaments was very dangerous; that the Chinese were apt to lose the resources which they needed so much for the successful completion of the currency scheme. He stated that the opinion in favor of war

64

"A further despatch on this subject was submitted May 15; not printed. Extract of memorandum transmitted to the Department by the Ambassador in China in his despatch No. 437, May 8; received June 1. Sir Frederick, chief economic adviser to the British Government, was in China temporarily as financial adviser to the British Embassy.

between Japan and China increased proportionately with the distance one traveled toward the south; in North China he found little or no interest in war with Japan; when one got to the Yangtze River one found it fairly strong; but when one arrived at Canton and Kwangsi one found a very active and outspoken war psychology. He said that Li Tsung-jen of Kwangsi had stated that they were prepared to cooperate with Chiang Kai-shek if he would fight the Japanese. Sir Frederick stated that he had a certain amount of sympathy with this point of view, but that he could not convince himself that the Chinese really would fight.

I told Sir Frederick that after all some one had to start a fight, and personally I did not think that the Chinese would start one; that as regards the Japanese it seemed to me that they were having too easy a time for them to change their tactics and begin an open conflict. I said that the present tactics here in North China indicated a certain cynical attitude of the Japanese towards the Chinese, and that the continued connivance of the Japanese at the smuggling operations now being conducted on such a large scale in North China would result eventually in the complete breakdown of the Chinese Customs service. I pointed out that this must eventually bring about the financial starvation of the Government; that troops and Government services were unpaid; and that under the circumstances the Japanese would have every reason to station forces here to protect their people and their interests from the chaos which they had created. Under the circumstances it seemed to me that if the Japanese wanted to appropriate territory or desired to take control of the administrative agencies in this area they need only proceed as they were now proceeding and that no war was likely to occur. Sir Frederick expressed the belief that to continue a policy of this kind would be as disastrous for the Japanese as for the Chinese, as they would soon find China a rotting carcass on their hands.

I told Sir Frederick that the whole situation here in North China had been changed somewhat, first by the decision of the Japanese Government to increase its military force here in North China and to appoint a commanding officer of rank sufficiently high to make him independent of control by the Kwantung army so that he would come under the direct control of Tokyo; and secondly, by the events of February 26th of this year. I expressed the opinion that the officers who had been retired as the result of the incidents of February 26th would now doubtless constitute a new body of elder statesmen or Genro who would have to be consulted by every person called upon to form a government in Japan. I said that in my opinion these men who really stood for the Army were on the horns of a dilemma: that they must either agree to a reform of the entire economic structure