1939: Japan

Cabinet Changes.

The Cabinet crisis, which had been brewing in the latter months of 1938, came to a head on Jan. 4, 1939, when Prince Konoye, who had been Premier for the duration of the war in China up to that time, resigned, declaring that he did so to clear the way for new policies in China and the 'new order' in Asia. The intensely nationalistic group which had brought about his downfall was pressing for invocation of all the provisions of the National Mobilization Act, which aimed at sweeping control of private industry, as well as of social and economic life. There had been much opposition to the bill and Parliament had passed it after assurance by the Premier that only certain sections of the Act, dealing mainly with mobilization and making men available for the draft, would be invoked during the war in China. Prince Konoye, who remained in the Cabinet as Minister without Portfolio, was succeeded by Baron Hiranuma, a man of definitely Fascist leanings, and in high favor with the Army. One important change in the Cabinet was the appointment of General Itegaki, Chief of Staff of the Japanese Army in the conquest of Manchuria, as Minister of War. Two other generals were appointed to the Cabinet: General Ugaki, as Foreign Minister, and General Sadao Araki, as Minister of Education.

Closing of 'Open Door' Protested.

During the first two weeks in January the Government was much perturbed by notes from Great Britain and the United States, in answer to the Japanese note of Nov. 19, 1938, which had demanded recognition of the 'new order' in East Asia and announced what practically amounted to the closing of the 'Open Door' in China. The American note, sent on Dec. 31, insisted that Japan must not impair American rights in China, and declared, among other things, that the American Government 'is well aware that the situation had changed' and that 'many of the changes have been brought about by the action of Japan.' The British note, handed to the Government on Jan. 4, 1939, took substantially the same stand. Both notes rejected the 'new order' in Asia based on abrogation of the Nine Power Treaty and pointed out that there was a legal and orderly way of revising treaties which, it was maintained, could be changed only by conference between the parties concerned and not by unilateral action. The official Japanese reaction to these notes was that there could be no change in Japan's fundamental policy. The Government also took the stand that it would not consent to an international conference to discuss the 'Open Door' and equal opportunity in China, but would consider direct negotiations with the powers concerned, provided that certain matters vital to Japan's interests would be considered and adjudicated.

At the opening of the Diet on Jan. 21, Baron Hiranuma stated that East Asia was to be built up through the cooperation of Japan, Manchukuo and China 'through full mutual understanding and in relations of helpfulness, neighborly amity and solidarity.' He closed his speech with a reaffirmation that the China affair would not end until Japan had obtained her objectives.

In the Diet, on Jan. 30 the new War Minister, warning that the war in China would be 'long and hard,' announced that plans had been made to maintain military forces in China indefinitely.

The Diet also considered at this session the matter of closer cooperation with Germany and Italy in the anti-Comintern alliance. Plans for outright military cooperation, which had been suggested earlier in the month, were temporarily shelved.

Seizure of Hainan; Disorders in Shanghai.

Despite a previous warning from both the French and British that any attempt to occupy the Island of Hainan would lead to undesirable consequences, the Japanese on Feb. 9, pleading military necessity, seized this island. Hainan lies directly athwart the line between Singapore and Hong Kong, not far from the French naval base at Cam Ranh in French Indo-China. The Japanese had bombed the island in September 1938, and following protests from the French Government declared it would be secure from further attack provided France would allow no military supplies destined for China to move through Indo-China. The French agreed. The occupation of Hainan opens the way for a direct thrust at Indo-China itself, and for this reason has been a source of anxiety to the French Government.

Late in February, Japan was considering means to check what was termed 'anti-Japanese terrorism' in Shanghai, where within the space of fifteen months, fifty-three political assassinations had occurred. The Municipal Council of Shanghai's International Settlement was accused of being arrogant and of failing to cooperate with Japan in maintaining peace and order. On Feb. 22, the Japanese Government instructed its Consul General in Shanghai to present a virtual ultimatum to the Council demanding that anti-Japanese activities be stopped forthwith. On Feb. 23, the Premier in answer to a question from the floor during a Parliamentary session, as to what the Government intended to do, replied that Japan would be compelled to take 'strong measures' if the Council or the Settlement was not sincere in its cooperation. The tension in the Settlement, from whatever cause, was dangerous, and both Great Britain and the United States on March 4th filed protests with both the Chungking Government and Japan calling attention to the seriousness of the situation. (See also SHANGHAI.)

Naval Expansion and Currency Regulations.

On March 6, the Government announced a six-year naval replenishment and expansion plan to cost¥ 693,000,000. Admiral Yonai in explaining the plan to the Budget Committee reaffirmed Japan's demand for naval parity, and stated: first, that Japan's navy must be equal to that of the strongest naval power; second, that the new British four-year plan and the new American naval program had been taken into account; third, that the navy must have sufficient power to deal with any international friction arising over the construction of the 'new order' in East Asia; and fourth, that in the event of other powers' further increasing their naval strength, Japan's own plans would be revised.

Following announcement of the naval expansion program, the president of the Planning Board gave notification of a three-year plan for a 'major transformation of Japan's economic and defensive power.' It was proposed, he said, to make China, Japan and Manchukuo self-sustaining in iron, steel, coal, light metals, soda, sulphates, ammonium, automobiles and railway rolling stock.

In North China the Japanese authorities announced new currency regulations. The Japanese yen was to supplant the Chinese dollar, which was declared valueless. Both Great Britain and the United States refused to support this program, and shortly afterwards Great Britain made a loan of £5,000,000 to the Chungking Government to bolster the Chinese dollar — an act which caused bitter resentment in Japan.

Military Campaigns in China.

During March, operations against guerrilla forces which had begun earlier in the year were continued in the five northern provinces of Suiyuan, Chahar, Hopeh, Shantung and Shansi. The fighting continued through the spring, and then in June a big offensive was launched against the guerrillas in southeastern Shansi in a desperate attempt to get control of this key province, which blocks the main route to Sian in Shensi Province. The Chinese Eighth Route Army engaged the Japanese forces all through June, July and August. Finally on Aug. 25, with the capture by the Chinese of the city of Tsincheng, the offensive was definitely stalled. Shansi is still in Chinese hands. Crushing the guerrillas would accomplish several very important things for Japan: first, it would bring large areas of North China completely under Japanese control and would mean that the products of this section could be used by Japanese factories and industrial plants; second, it would furnish an outlet for the finished products of Japan's factories; and third, Japanese garrisons in North China could be put on a peace-time basis, thus greatly reducing the cost of maintaining large forces on active duty.

In addition to the campaigns against the guerrillas, during the early months of the year Japan started several fairly large offensives in China. The earliest began in February on the central front, north and south of the Yangtze River. South of the river, Japanese forces won an important victory on March 27 in the capture of the city of Nanchang, capital of Kiangsi Province, and appeared to be rapidly moving on to take the important city of Changsha. A strong Chinese counter-offensive in April, however, decisively checked this drive. Meanwhile in the same month Japanese forces were moving northwest from Hankow, up the Han River Valley towards the city of Ichang, International Treaty Port on the Yangtze River, in a desperate effort to cut off the North China Provinces from Chungking and the central front. The struggle became deadlocked late in the month when the Chinese stopped the invaders at the Han River. At the end of May Japanese forces had carried their advance well into northwest Hupeh where, owing to stiff resistance by the Chinese, the advance was turned into a rout. (See CHINA.)

Annexation of the Spratly Islands.

The Sino-Japanese war and its probable effects on European colonial possessions was brought sharply to the fore on March 31, when Japan annexed the Spratly Islands, a small group of coral reefs between British Borneo and French Indo-China. This group of islands had been formally annexed by France in 1933 — a fact of which the Japanese were reminded on July 3, 1938, when France took over the Paracel Islands off the coast of Indo-China, and south of Hainan. While these islands, as has been pointed out by many observers, could have no commercial value, they are ideal for submarine bases, for airports and for the storage of oil and other supplies. French protests over the seizure of the Spratly Islands were rejected by Japan on the ground that France had never undertaken the effective occupation required by international law, and that, furthermore, the islands were utilized by Japanese and not by French nationals. Occupation of these islands puts Japan within bombing distance of Singapore, which is 640 miles away. (See also FASCISM.)

Air Services.

Simultaneously with the announcement of the annexation of the Spratly Islands came the statement that Japan was inaugurating commercial air services between Yokohama and the island of Saipan, which is 52 miles north of Guam, United States naval station. At the end of the year, in December, a new air service between Tokyo and Bangkok was inaugurated. This was done, it was understood, to strengthen Siamese-Japanese relations.

Shanghai International Settlement Problems.

Japan's desire to take over control of Shanghai's International Settlement, which was claimed to be a breeding ground for anti-Japanese activities, appeared again on May 2, when in a joint statement issued by the Army and Navy authorities in Shanghai, warning was given that unless conditions improved, Japan would be compelled 'to take strong measures.' The 'warning' contained the following demands: (1) abolition of terrorism; (2) closing of all agencies of the Chungking Government in the Settlement and Foreign Concessions; (3) suppression of anti-Japanese publications; (4) suppression of organized anti-Japanese movements; (5) prohibition of the display of Chinese national flags; (6) surrender of the Chinese courts to the authority of the new Shanghai Administration courts (set up by Japan); and (7) surrender by the Settlement authorities of the Land Office records for the whole of the Shanghai area, which had been deposited with the Municipal Council for safekeeping.

On May 3, negotiations were begun between Japan's Foreign Minister and the British and American Ambassadors regarding the suggested changes in reorganization as set forth in a memorandum by the Foreign Minister. The views of the two Ambassadors were submitted in separate memoranda. On May 17, following tension between Japan and the powers in Kulangsu, International Settlement in Amoy, the American Ambassador delivered to the Tokyo Foreign Office, at the direction of the United States Department of State, an aide-memoire, flatly rejecting the Japanese proposals for reorganization set forth in the May 3 memorandum.

On May 19, as a warning to Japan that she must keep hands off the International Settlement of Shanghai, the governing body of that area joined with the French Concession in a display of armed force. In both areas, all available man power was mobilized, the French forces including French Annamite soldiers, French and special Chinese police from the French Concession, and a number of French sailors who had been landed from warships in the Whangpoo River. (Later on Sept. 14, the question of the defense of the Shanghai International Settlement was brought up for consideration by Japan when she called together the United States, British and Italian defense commanders in Shanghai to consider a proposed plan of defense 'in view of the complete change of defense conditions.' To date, however, no changes have been made and the status of the Settlement remains the same.)

Amoy International Settlement Problems.

The tension which had arisen on May 10 in the International Settlement in Amoy came as a result of the landing of Japanese marines in the Settlement and the issue of a warning that Japan intended to take over control of that area. On May 17, France, Great Britain and the United States, replied to this threat by landing their naval forces in the International Settlement. On May 22, the flagship of the Japanese Commander-in-Chief arrived in Amoy in order to negotiate with the foreign powers involved, and contended that there was no need for the landing of foreign forces since Japan, in landing her marines there, did so only for the purpose of protecting her own nationals. The foreign warships, however, did not leave.

(The dispute over the International Settlement at Amoy was settled finally on Oct. 18, and the American and Japanese naval forces withdrew simultaneously from the Island (the British and French units had withdrawn immediately following the outbreak of the European war). The far-reaching demands of the Japanese were not granted, although the agreement reached called for immediate cooperation between the Municipal Council and the Japanese Consul General for the suppression of anti-Japanese activities in the Settlement. The agreement also included the appointment of a Japanese police inspector and a Japanese police sergeant to the local police force.)

Attacks on Chungking and Sian.

Meanwhile the French, British and American Ambassadors in Tokyo were protesting to Japan over the repeated bombings of Chungking during May and earlier, and the consequent destruction of clearly indicated foreign property in the Chinese Capital.

Ever since the outbreak of hostilities in July 1937. Japan had tried unsuccessfully to take the city of Sian in Shensi Province, strategic link with the motor highway through Sinkiang to Siberia. Another serious attempt was made in May, when Japan launched an offensive northwest from Hankow aimed at this vitally important city. The offensive failed, however, decisive defeat being inflicted on Japan's troops by Chinese regulars under the command of General Li Tsung-jen.

Blockade of Foreign Concessions in Tientsin.

In June strained relations which had developed between Japan and Great Britain in North China, owing principally to Britain's support of the Chinese dollar and failure to cooperate economically with Japan in that region, reached a serious crisis. Officials of the British Concession refused to deliver to Japanese authorities four Chinese whom the Japanese accused of killing an official of the Tientsin Provisional Government. The Japanese thereupon declared that it was necessary to isolate the Concessions, which had become 'a nest of intrigue and plots,' and on June 14, they proceeded to blockade the British and French Concessions. Japanese soldiers were stationed around the Concessions and were ordered to search all persons entering or leaving the foreign zones. Automobile traffic was ordered stopped over the international bridge leading from the French Concession to the main railway station, and at the station itself. All vessels arriving at Tientsin were ordered to anchor at the Japanese wharf below the Concessions. Then, charged wire, carrying 1,000 volts of electricity, was strung around the Concessions so as to prevent the smuggling of food for the British and French residents. The blockade entirely cut off British trading and seriously curtailed the food supply. Frequent instances of striking, searching, and in some cases even stripping of British men and women Occurred.

The indignation in England over these happenings was bitter. British protests to the Tokyo Government over what Mr. Chamberlain termed 'intolerable insults,' brought a reply that the affair must be settled locally, by the Japanese military authorities in charge However, Japan later agreed that negotiations for settlement of the issues involved would be transferred Tokyo, and late in June, the British Ambassador started conversations with Japan's Foreign Minister. The British request that the blockade be lifted pending the outcome of negotiations was bluntly refused.

Fall of Swatow.

In June, after a day of aerial and naval bombardment, Japanese forces occupied the city of Swatow, one of the last seaports on the South China coast remaining in Chinese hands. The Japanese were jubilant over the fall of this city of 178,000 as they claimed it was a blow to China's economic life. Immediately following the occupation of Swatow, the Japanese naval commander ordered all foreign warships to leave the harbor and all foreign residents to evacuate the city. This the British and American warships refused to do. In the American note to the Japanese authorities at Shanghai refusing to comply with this order, it was stated that Japan would be responsible for any loss of American lives or property at Swatow, and that further American ships were within their rights in entering or leaving the port. The British also sent a note of the same effect. Both Governments thereupon doubled their naval forces in the vicinity of Swatow. Several days later, Japan warned foreign powers to stay away from the ports of Foochow and Wenchow, in South China, as they intended closing these ports. Both the British and French refused to comply, but as no American vessels were at these ports, and American interests in the two cities were not large, the American Government made no protest.

Japanese-British Agreement Concerning Japanese Army in China.

In July blockade of the British and French Concessions in Tientsin continued, and foreign residents faced a serious food shortage. The searchings and strippings continued, Britons in particular being singled out.

On July 14, as conversations were starting in Tokyo between the British Ambassador and Japan's Foreign Minister, the British Embassy in Tokyo was attacked by 50,000 angry Japanese, who tried to rush the gates and were held back by a triple cordon of police. This demonstration was staged to impress upon the English the resentment Japan felt over British aid to China. Among the demands presented to Britain at the conference were the following: (1) immediate surrender of the four Chinese accused of murder; (2) collaboration in the North China currency policy of Japan; (3) transfer of the Chinese Government's silver reserves in Tientsin banks to the Japanese-sponsored régime at Peiping; (4) control of Chinese banks in the British Concession; (5) suppression of anti-Japanese activities; (6) abandonment of Britain's pro-Chiang Kai-shek policy.

The talks between the two Governments dragged on, with Mr. Chamberlain warning Japan that Britain would refuse to collaborate with her in the establishment of the proposed 'new order' in Asia as the price of an agreement by Tokyo to discontinue the blockade at Tientsin. Finally on July 24, Prime Minister Chamberlain announced in the House of Commons that a formula had been agreed upon by both Governments under which Britain would recognize the 'special requirements' of the Japanese Army in China, and that a certain amount of cooperation with that army had been agreed upon. The formula, admitted by the British to be ambiguous, should not be interpreted, Mr. Chamberlain stated, as meaning that there would be an extension of belligerent rights to Japan by Britain, and in response to a question from Mr. Arthur Henderson, Labor member of Parliament, as to whether it was not a de facto recognition of Japanese sovereignty in the parts of China occupied by Japan, Mr. Chamberlain replied 'No, sir.' Mr. Chamberlain also stated that 'the declaration does not connote any change of British policy in China.'

To many observers it seemed that the Japanese-British agreement would prove to be a fertile source of further friction between the two countries. While the British and Japanese had not reached complete agreement over difficulties at Tientsin and elsewhere in China, Britain had agreed to surrender the four Chinese in the British Concession wanted by the Japanese authorities. The question of turning over the $400,000,000 Chinese currency in the banks in the Concession was, however, still unsettled. Meanwhile in Tokyo, Britain and all things British were being subjected to a widespread campaign of violent and bitter abuse over their 'unfriendliness' to Japan. Within twenty-four hours after the text of the agreement was published, the Japanese commander at Canton notified the Consular Authorities of all Western nations that the Canton River would be closed for two weeks.

On Aug. 6, two British Yangtze River steamers were destroyed by Japanese bombs dropped from planes attacking the city of Ichang. The Japanese refused to consider the protest of the British over this loss, however, claiming that they could not be held responsible.

United States Trade Treaty of 1911 Abrogated.

On July 26, the United States Government, as a reminder of its displeasure over Japan's actions in China against American life and property, notified the Japanese Government that it was abrogating its 1911 trade treaty with that country, the same to take effect six months from that date. The American Government, through its official representatives, had made repeated protests to Japan over the bombing of schools and hospitals, which had no military significance, over assaults on American citizens; and in general over interference with American business and rights in the occupied areas. The American note was signed by Secretary of State Hull, and said, in part: 'The Government of the United States has come to the conclusion that the Treaty of Commerce and Navigation between the United States and Japan . . . contains provisions which need new consideration. Toward preparing the way for such consideration, and with a view to better safeguarding and promoting American interests as new developments may require, the Government of the United States . . . gives notice hereby of its desire that this treaty be terminated, and, having given notice, will expect the treaty . . . to expire six months from this date.'

Japan, surprised and shocked at this unexpected development, said the action was 'unfriendly' and 'unbelievably abrupt.' The day following the American denunciation of the treaty, Japan initialed an agreement for revision and extension of its existing commercial treaty with Germany. It is to be noted, however, as a trained observer has pointed out, that for every dollar's worth of goods Japan sells to Germany she sells ten dollars' worth to the United States; and that her sales to the United States are, therefore, not only a highly important factor in her own economic life, but a determining one in her ability to finance her war in China. (See also UNITED STATES; WORLD PEACE.)

On July 27, a United States protest was handed to Japan over the blockade of the Canton River and the restrictions placed on entry into Shameen Island, on which both the British and French Concessions are located, and where the United States also has interests. Protests were also lodged by the United States on Aug. 2, over the mistreatment of American nationals by the Japanese military in China, particularly in Tientsin.

Cabinet on Changes of Foreign Policy; General Abe Premier.

On Aug. 20, it was announced that the Anglo-Japanese negotiations over the Tientsin blockade had been temporarily suspended owing to Britain's unwillingness to agree to some of the conditions set by Japan, the main one being refusal to turn over the Chinese money in Concession banks. The stiffening of the British attitude was believed to be due, in part at least, to recent action by the American Government in announcing abrogation of its trade treaty with Japan. On the same day, flood waters around Tientsin washed away Japan's barricades of the French and British Concessions, thus temporarily lifting the blockade which had lasted for nine weeks. (The barricade was later replaced, and Britons leaving the Concession were compelled to wait sometimes an hour or more before being allowed to pass.)

At a meeting of Japan's 'Inner Cabinet' in August there was full discussion as to Japan's European policy, the more radical of the Army leaders urging closer cooperation with Italy and Germany. However, no steps in that direction were decided upon, the consensus of opinion being that Japan must follow an independent policy in European matters. Resistance to the Axis was growing in spite of the vigorous demand by the Army for a closer alliance.

Surprise and deep resentment were expressed in Tokyo over the signing of the Russo-German Non-Aggression Pact on Aug. 23. On Aug. 25, the Japanese Ambassador in Berlin was instructed to file a protest against the new pact on the ground that it violated the spirit of the anti-Comintern Agreement. This action was taken on instructions from the Cabinet. (See also FASCISM.)

On Aug. 28, the Cabinet, headed by Premier Hiranuma, resigned in a body, and the Emperor commanded General Nobuyuki Abe to form a new Cabinet. General Abe is believed to be an impartial neutral between the Army faction that leaned towards Germany and the largely civilian group which would favor efforts to court the goodwill of the United States and Great Britain.

Early in September tense relations between Japanese and British in the British Concessions in China were eased somewhat, as resentment against Germany over the Russian alliance expressed itself in rough handling of Germans throughout China.

On Sept. 4, the new Cabinet issued a statement to the effect that 'in view of the European war that has just broken out, Japan does not intend to be involved in it; she will concentrate her efforts upon the settlement of the China affair.' This was followed shortly by a statement that if the other powers wished to withdraw their troops from China, Japan would be ready to protect their nationals and interests.

Early in October, a minor crisis in the Japanese Foreign Office, causing the resignation of more than one hundred officials, was settled in favor of the disgruntled rebels who had objected to having the Economic Section of the Foreign Office transferred to the Trade Ministry. The controversy, which lasted over a week, was settled on October 14.

Fighting between Japanese and Soviet Troops; Truce Declared.

On Sept. 12, a considerable shifting among commanding officers in the Japanese Army resulted in the naming of new supreme commanders for the forces in China and Manchukuo. The changes would coordinate military operations in China and make possible the launching of vigorous rehabilitation and reconstruction campaigns, it was believed. The new Commander-in-Chief of the Japanese forces in Manchukuo, Lieutenant-General Umezu, in a press interview immediately following his appointment, intimated that Japan was ready to begin negotiations with Russia for settlement of the long-drawn-out border disputes between the two countries. In general, his remarks emphasized the peaceful intentions of Japan towards Russia. He declared that Japan had never provoked the Soviet Union and had never initiated any moves against Russia in the border disputes, which, he said, 'have arisen from the absence of a definite boundary line.'

Serious tension between the two countries had developed owing to clashes of their troops on the Siberian-Manchukuoan border, and in Mongolia, as well as over fishing rights in the valuable Northern Kamchatka fishing grounds. On Jan. 31, a detachment of Japanese Manchukuoan troops had attempted to take 'Island 227' in the Argun River, which runs northeast of Manchuli, important border point where the Chinese Eastern Railway crosses from Siberia into Manchukuo. The Russians claimed that under a treaty signed with China on Nov 25, 1911, this island belonged to them. The Japanese refused to recognize this claim. Heavy fighting occurred in this section, and the Japanese were driven back. Following further border fighting, the Japanese Diet on Feb. 14, after fiery speeches in the Lower House, passed a resolution to take a firm stand against Soviet Russia.

The Government announced at the same time that it would fight to maintain its rights in the fishing grounds, which had been granted it by the Treaty of Portsmouth signed at the end of the Russo-Japanese War, in 1905. These fishing grounds are within Soviet territorial waters along both coasts of the Kamchatka Peninsula and other areas in the Bering and Okhotsk Seas. The fishing 'lots' are near shore and range in size from 100 feet to several miles. Attempts by Japan to secure a renewal of the one-year agreement covering fishing privileges, which ended on Dec. 31, 1938, were fruitless during the first three months of the year; and then on April 2, after serious trouble had seemed inevitable, Russian Foreign Commissar Maxim Litvinov and the Japanese Ambassador, Shigenori Togo, signed an agreement at Moscow regulating fishing rights for the remainder of 1939.

Shortly after the signing of the agreement, however, fighting again occurred on the Manchukuo-Siberian border, with losses on both sides. By May, Soviet and Japanese forces were fighting at both ends of the Manchukuoan frontier. On the western border, the Japanese claimed that Mongolian forces, urged on and protected by Russia, had attacked them.

The fighting in Outer Mongolia (see MONGOLIA) had reached serious proportions in July. Heavy reinforcements of Japanese soldiers were sent there, and it was estimated that Japan had 60,000 soldiers engaged in heavy fighting with the Mongol and Soviet troops in Outer Mongolia alone. On July 16, Japanese military headquarters reported that Russian planes had bombarded the town of Furoruji, railway junction southwest of Tsitsihar, and that in the raid two buildings were destroyed and a number of people seriously wounded. This air attack was the third within a week against rail centers in Manchukuo, and the Japanese Government lodged a protest with the Government at Urga, capital of Soviet-protected Outer Mongolia. On July 18, another attack was made by Soviet and Mongol planes on the railway center of Hularshan. The fighting continued through August and early September. Late in August, what a Japanese War Office spokesman, in reporting on the matter later, referred to as a 'disastrous, bitter battle' was fought between Japanese troops and a large Soviet-Mongol mechanized force, resulting in numerous casualties and decisive defeat for the Japanese. The battle was the culmination of ten days' fierce fighting; and according to Japan's own estimates, her dead and wounded numbered 18,000.

An armistice for a cessation of hostilities was agreed upon on Sept. 15 between the new Russian Commissar for Foreign Affairs, Molotov, and the Japanese Ambassador to Moscow, Shigenori Togo. The armistice was to go into effect on Sept. 16, at 2 P.M., the respective forces maintaining what they had held at 1 P.M. on Sept. 15.

Japanese Government spokesmen vigorously denied that the truce was a forerunner of a Soviet-Japanese non-aggression pact, foreshadowing closer cooperation between the two nations. This possibility, however, was pointed out by many competent observers. It is to be noted that one of the immediate effects of the cessation of border warfare was the releasing of large numbers of Japan's troops on the Manchukuo-Siberia border for fighting in China Proper.

Shortly after the signing of the armistice, Japan gave Great Britain official assurance that she would not permit the arming of German merchantmen in her ports for commerce raiding. While Japan avoided the use of the word 'neutrality,' such a position was implicit in her assurance. (See also U. S. S. R.)

Late Military Movements in China.

Following the Mongolian border truce with Russia, Japan launched an offensive against the city of Changsha. But the Chinese, following the tactics used at Taierchwang in the spring of 1938, withdrew to the surrounding mountains, and then suddenly attacked the long Japanese columns, forcing them to fall back 60 miles north of the city with heavy losses in men and equipment.

On Oct. 15, Premier Abe announced that in the course of a month or two, a new Central Government in China, headed by Wang Ching-wei, would cooperate with Japan in the reorganization of East Asia. He stressed the point that such reorganization must be carried on without the aid of outside powers.

Late in November, Japan had begun a drive towards China's important highways in the Southwest. In December a Japanese force landed in the vicinity of Pakhoi on the South China coast near the Indo-China border, and pushing westward from Kwantung through Kwangsi, finally captured the city of Nanning, strategic communications point in Kwangsi on the trade route to Indo-China.

At the end of 1939, after two and one-half years of warfare in China, Japan, while she had in a series of brilliant military victories overrun half of China, was still a long way from final victory. Today, the Japanese army controls less than one-third of the vast area it claims to have conquered since the beginning of the war. It has tight control of the railways and main population centers, but the remaining two-thirds is dominated by Chinese guerrilla forces, now constituting one-third of the entire Chinese armed forces, which means that approximately 600,000 Chinese soldiers are operating inside the Japanese lines. A map of the Japanese-controlled areas would show a series of lines from five to thirty miles wide in a more or less checkerboard arrangement, designating railway lines and vital highways, with heavy dots indicating important cities on or between these lines where Japanese troops are garrisoned. The intervening countryside, including thousands of small villages and hundreds of walled towns, still remains in Chinese hands.

American Protests and Japanese Reactions.

American resentment over 'bombings, indignities and manifold interference with American rights' in China was voiced by the American Ambassador to Japan, Joseph Grew, in a public speech in Tokyo on Oct. 19. The frankness of Mr. Grew which, as he himself phrased it, came 'straight from the horse's mouth,' offended and worried Government officials, who up to this time had not informed the Japanese people of American displeasure over events in the Sino-Japanese war. 'The 'new order' in East Asia,' said Mr. Grew, 'has been officially defined in Japan as an order of security, stability and progress,' but added that this ''new order' had appeared to include depriving Americans of their long-established rights in China, and to this the American people are opposed. . . . It is probable that many of you are not aware of the increasing extent to which the people of the United States resent methods which Japan's armed forces are employing in China and what appear to be their objectives.' After enumerating specifically some of the actions of the Japanese military to which the Americans are opposed, he concluded, 'Only through consideration of those facts, and steps to alter those facts, can Japanese-American relations be improved.' The day following this speech, the new Foreign Minister, Mr. Nomura, declared that 'the determination of the entire Japanese nation to bring about a new order in East Asia is too strong to be changed or affected by the interference of a third power.'

During late October and through November and December, the American Ambassador and the Japanese Foreign Minister conferred frequently regarding continuing interference with American rights in China which, despite innumerable representations to the Japanese Government, were without redress. On Nov. 10, the Japanese Embassy in Washington announced that settlement had been made of a number of claims for injuries to American interests, as a result of the Japanese invasion of China, some of the claims being of long standing.

Through December, Japan continued to feel concern over the coming expiration of her trade treaty with the United States on Jan. 26, 1940. As gestures of appeasement, more claims for damages to American property were paid, and on Dec. 18 the Japanese Foreign Minister stated to Ambassador Grew that the Japanese Government intended to reopen the Yangtze River between Shanghai and Nanking, and also the Pearl River 'at the proper time.'

This action brought about severe criticism from the intensely nationalist elements in the Government, who warned the Premier and the Foreign Minister that they would not tolerate any policy of 'appeasement' towards the United States, which would have the effect of encouraging continued resistance by Chiang Kai-shek. Demands were made that the China 'incident' be speedily brought to an end. Discontent with Government policies and dissatisfaction over the failure to settle the China affair resulted on Dec. 27 in the adoption of a resolution by the Lower House, signed by 240 out of the 446 members, asking the Cabinet to resign. While the Cabinet refused to comply, it was clear that a crisis was approaching, and that in face of increasing criticism the Abe Cabinet could not last. (A new Cabinet was formed early in 1940.) (See also UNITED STATES: Foreign Relations — Far East.)

Agreements with Russia.

It became clear during November that a movement for accord between Russia and Japan was gaining favor both in Moscow and Tokyo. On Nov. 20, the Russian Commissar for Foreign Affairs and the Japanese Ambassador in Moscow 'exchanged opinions on the fundamental principles upon which a Soviet-Japanese trade treaty must be based,' according to the official Russian News Agency. Trade between the two countries since 1925 has been limited to payment in certain classes of goods, as part payment for the Chinese Eastern Railway. However, the advocates of cooperation with Russia do not have wide support, as there is still great distrust of Soviet intentions. The element most in favor of a rapprochement with Russia now is the Army, worried over the progress of the war in China, and believing that if Russian aid to Chiang-Kai-shek were cut off, Chinese resistance would collapse, and they could write finis to what has been a very costly venture.

At the end of the year Japan reached an agreement with Russia, whereby Japan agreed to pay the final installment on the Chinese-Eastern Railway, which she had so far refused to do, claiming the road had been sold to Manchukuo. The final payment on the Railway amounted to ¥5,900,000; but ¥1,300,000 was to be deducted for railroad accounts owed by Russia. In return, Russia renewed the Kamchatka fisheries agreement for another year, with a promise to begin negotiations for a long-term agreement immediately. (The agreement reached on April 2 covered the fishing rights for only the remainder of 1939.)

Mandates Commission on Japanese Pacific Islands.

The Mandates Commission of the League of Nations announced on Dec. 12 that Japan had failed to send a scheduled report to the Permanent Mandates Commission regarding her administration of the former German Islands in the South Pacific. However, Japan made it plain when she withdrew from the League that she considered the former islands her outright possessions, and was prepared to back up her claims with force if necessary. (See JAPANESE PACIFIC ISLANDS.)

Economic Situation.

Early in December, Japan faced a serious rice shortage because of the failure of the rice crop, and 80,000 bushels, purchased in China by the Army, were sent to Japan to relieve the scarcity. The drought, 'the worst in 170 years,' also brought on a power famine, and this situation caused the Electricity Board to warn that Japan must restrict Her consumption of power for several years.

New taxes on a number of commodities were announced on Dec. 5, as well as an increased income tax. Three days later the Japanese Cabinet approved the largest budget in the country's history. It calls for expenditures of ¥10,360,000,000 (the yen was valued at about 23½ cents on Dec. 8). Of the total, ¥6,767,000,000, or 64 per cent is for military purposes. It is expected that ¥5,400,000,000 will be raised by a loan. The Japanese newspaper Asahi stated that financial circles in Japan were concerned over the budget, not because of the increased amount called for, but because they believe Japan does not possess sufficient material to carry out the work for which budgetary provision was made.

Contrary to predictions at the end of the first year of the war in China that Japan's finances would be unable to stand the strain much longer, she has come through another year and a half of warfare with her finances, though weak, still not on the point of collapse. It was claimed, as one authority has pointed out, that Japan could not stand a debt of 10,000,000,000 yen, but that she has survived a debt well over that amount and that Government bonds issued to support her expenditures have been absorbed by Government banks at the rate of ¥300,000,000 a month. This, of course, cannot go on indefinitely. Although Government figures showed a favorable trade balance of ¥26,300,000 for 1938, which was a decided improvement over the adverse balance of ¥607,700,000 for 1937, this did not result from increased exports, which fell by 35 per cent, but from sharp curtailment of imports of industrial raw materials; and furthermore, these figures did not include the huge volume of exports to Manchuria. If we exclude this trade, which contributes nothing to necessary foreign exchange, the so-called surplus becomes a deficit of ¥426,900,000 (the yen is valued at roughly 25 cents in United States money). To balance her accounts, Japan has been compelled to export gold. In the two and more years she has been at war, she has sent somewhat over ¥1,685,000,000 abroad; and her total gold reserves now are not much over half that amount. (See also INTERNATIONAL BANKING.)

Trade with United States in 1939.

For the first five months of 1939, American exports to Japan totaled $96,290,000, as against $109,669,000 for the same period in 1938. American imports from Japan in the same period amounted to $50,242,000 — an improvement over the $47,849,000 for the corresponding period of 1938. During the first six months of 1939 Japan shipped gold to the United States amounting to $85,227,000, and silver amounting to $2,587,000. Owing to the income from these bullion shipments, she converted a five-month trade deficit of over $45,000,000 into a net credit balance against the United States of over $40,000,000, which has enabled her to make down payments on various types of machinery. By August, Japan's exports to the United States amounted to ¥54,486,000, and by October they had risen to ¥78,553,000 — an increase of 44 per cent. In the same period her imports from the same country rose from ¥68,158,000 to ¥82,857,000. Her trade with Latin America showed a similar trend.

Trade with Germany and Russia.

Owing to the British blockade, Japan's trade with Germany, which before August 1939 showed exports averaging ¥3,000,000 a month, had dropped in value to ¥7,000 by October. Her imports from Germany dropped 46 per cent. Japan's trade with Germany has never been large, and she has purchased from the Reich about eight times as much as she has sold. Roughly 75 per cent of Japan's foreign trade has been with Great Britain and the United States. While for a time Britain's imports of Japanese canned foods rose sharply owing to the possibility of a submarine blockade, Japan's European trade as a whole has declined so far this year from ¥31,854,000 to ¥24,058,000. Japan's Russian trade is slight, the total Russo-Japanese trade for the first ten months of 1939 being valued at ¥13,000,000. (See also WORLD ECONOMICS.)