550.S1 Washington/586½
Memorandum by the Chief of the Division of Far Eastern Affairs (Hornbeck) of a Conversation Between American and Japanese Representatives
| Present: | The Secretary of State, |
| Viscount Ishii, | |
| Mr. Fukai, | |
| The Japanese Ambassador38 | |
| Mr. Tsushima, | |
| Mr. Taketomi, | |
| Mr. Iida, | |
| Mr. Warburg, | |
| Mr. Bullitt, | |
| Mr. Tugwell, | |
| Mr. Wylie, | |
| Mr. Livesey, | |
| Mr. Sussdorff, | |
| Mr. Hornbeck. |
The conversation was opened by the Secretary of State, who made a statement with regard to the purposes of the conference and certain views of the American Government in connection with procedure related thereto.
Viscount Ishii said that his delegation would be content with any order of procedure in regard to the conversation.
Mr. Warburg gave an account of the suggestions which the American Government has laid before other delegations and of the views which we entertain and of some points in which other delegations, by name, have been in accord or in disaccord with our views.
When the conversation had reached a certain point Viscount Ishii asked what agreements had been arrived at.
Mr. Warburg replied that we had avoided making any agreements; we had merely discussed matters—”just as we are doing with you”. Mr. Taketomi said that he had seen in the newspaper that six points had been agreed on; he understood that this is a statement which Senator Pittman had given out.
Mr. Tugwell said that we must not believe anything that we see in the papers.
Mr. Bullitt said that we had made no agreements; we had simply held conversations and kept everything in suspense.
Mr. Warburg said that the things which we are talking over are simply things which we are going to suggest at the conference. We [Page 538] realize that each country has its own domestic problems which necessarily have a bearing on its views.
At this point the Japanese group held some discussion in Japanese.
Mr. Fukai then stated that Mr. Tsushima would ask some questions.
Mr. Tsushima said that, as to monetary policies, in particular, under the heading “capital movement” what is meant is “international investment”. He understood that the International Labor Office at Geneva was going to propose some international program of international public works.
Mr. Warburg said that we felt that each nation must raise its own funds. We would oppose without any ambiguity a proposal that we finance someone else’s program.
There followed some discussion of the purport of proposals for stabilization, toward the end of which Mr. Warburg asked what would be the Japanese attitude toward a de facto stabilization.
Mr. Fukai replied that as he saw it exchange rates are not in their nature subjectable to control of governments.
Mr. Warburg said that the only thing we could do would be to reduce speculation.
Mr. Fukai said that to undertake to fix a rate at a certain point was a different thing from trying to prevent its going lower.
Mr. Warburg asked whether he should outline how we think it might be done: whether we should have a little exploration of the idea. Suppose that some of the countries are going to attempt stabilization. They could give notice of the rate at which each expected to stabilize; each could act independently, but they would notify the others of any change. This does not suit us from the point of view of our domestic policy; but we think that the work of the conference would be greatly facilitated by having stability while the conference is going on. Suppose we agree to accept the exchange of other countries at a given price.
Mr. Fukai said that he was not speaking in an abstract and general way. Japan had lost a lot of gold. She could not afford to let gold go out. She had almost no hoarded funds abroad. From exports she paid for imports. In addition she had been sending out newly produced gold. She had practically no funds to be used for stabilization of exchange. The United States had plenty of gold. England had a hoard. France has much gold.
Mr. Warburg inquired whether it was the Japanese feeling that it would not be helpful to them unless the stabilizing were at so low a figure that the effect would be to put the yen up.
Mr. Fukai said that he would begin again. So far as the Japanese Government and Bank of Japan were concerned they had done everything possible to prevent the going down of Japanese currency. Since [Page 539] last November they had been able to maintain exchange at somewhere between 20 and 23 cents. Before that there had been fluctuations downward from 49 to 20 cents. They did not like the low exchange. They are anxious to maintain the yen at the present level. So far they have been successful. He hoped they would be so for some time to come. If there are no unexpected developments they would be able to prevent further depreciation. So—their desire and hope coincided with our point of view; but as to entering into an undertaking, they must either let their gold go to a certain extent or must have difficulties [?] which we have not. In order to envisage an ultimate return to the gold standard they must hold their present stock of gold.
Mr. Warburg said that if he were in their place he would say the same. It was valuable to us to have that point defined. We are willing that those who are able to do this do it.
Mr. Tsushima said that Japan had invisible exports amounting to $75,000,000. He thought that the yen was not subject to any undue fluctuation. But if they made undertakings to stabilize at a particular point it would lead to fluctuation. Therefore they would try to prevent fluctuation of the yen but they did not desire to make any definite engagement.
Mr. Warburg inquired: Is not the chief threat to your exchange a budgetary threat rather than an international threat?
Mr. Tsushima replied that there would be no further occasion to depreciate the yen. As to de jure stabilization, Japan’s budget was unbalanced. He thought that this would continue for a year or two. We could not know how long. The international commodities price is not adjusted. We must have internal readjustment before there will be a chance for international readjustment.
Mr. Warburg said that we had seriously considered with the British and French the idea of stabilization—in order to facilitate the work of the conference.
Mr. Fukai said that he could say definitely that the Japanese did not want to let their exchange go lower. They would do everything possible to prevent it and he hoped that they would be successful. This would be to their conscious interest and he thought that it would contribute to world interest. What he did not see was how any engagement could be made. In the present condition of Japan an undertaking would be impossible.
Mr. Warburg asked whether, in regard to movement of capital they were in agreement with our view.
Mr. Tsushima said that they could not admit the necessity of an international public works program. Japan had her own internal problems: her own people were demanding more public works.
Mr. Warburg made a statement on the subject of loans to debtor nations and gave some account of the British view.
[Page 540]Mr. Warburg stated that we have no desire to have an unbalanced amount of the world’s gold in this country.
Mr. Fukai said that the Japanese Government had had to issue bonds to meet its expenditures. It had not been able to issue these to the public. The Bank of Japan had taken them up. But so far they had been able to sell them to other banks and subscribers. In the future their budgetary system might affect their international exchange; but they were trying to prohibit the flight of capital and speculation of exchange operations since last November. (Mr. Warburg remarked that they had done this very effectively).
Mr. Tsushima said that with regard to cooperation among central banks the Japanese were quite in accord with the American view. They wanted to pursue an easy money policy. The Bank of Japan was ready to help.
Mr. Fukai said that he would add—and he would come to a wider field—: the Japanese agreed that a policy of free credit and cheap credit was desirable to meet the situation of the world in general and of Japan; but that there was a limit: if the policy went too far it might interfere with the Japanese objective of a return to the gold standard. So, it was not an immaterial question whether we were going on the theory of cheap money without limit.
Mr. Warburg said that there would be stages.
Mr. Tsushima suggested that there be a limit.
Mr. Warburg said that the general tendency must be taken advantage of to start our machinery. We did not advocate that everybody do it regardless of internal situations.
Mr. Fukai said that if the policy went too far it would lead to unbridled inflation.
Mr. Warburg said that easy money should not be pursued by countries that could not afford it.
Mr. Fukai said that he agreed that to meet the present situation cheap money was desirable. To a certain extent an increase in the amount of currency was inevitable; but that the Japanese could not agree in principle to unlimited cheap money.
Mr. Warburg said that we concurred.
Mr. Tsushima said that the Japanese were anxious to remove trade barriers. The Japanese Government had no thought of intervening in the normal transactions of foreign trade. They were anxious to prevent the flight of capital. Japanese bonds issued abroad and those at home had a big difference in yield.
Mr. Fukai said that so far as exchange transactions were trade barriers, what Japan wanted was to restrict the flight of capital. Here was one of the means by which they maintained exchange. They did not like to use exchange restrictions such as Germany is using.
[Page 541]Mr. Warburg said that they differentiated between exchange restrictions which obstruct trade and those which …39
Mr. Tsushima said that with regard to the question of a 25 per cent reserve, the Bank of Japan, like the Bank of England, had no fixed rate. It was advisable for Japan to maintain her existing system.
Mr. Warburg inquired whether the Japanese would as a matter of practice agree that 25 per cent was a practicable rate.
Mr. Fukai said that Japan’s position was quite clear: as to the general world question they might be lighthearted, for the reason that they have no definite connection with that problem; therefore, if the general tendency is in that direction he saw no reason why Japan should obstruct; but he personally did not favor this; he did not believe in a legal reserve system; that was his personal opinion; but if the majority thought it good, Japan would not take exception to it.
Mr. Warburg inquired whether, assuming that there was a legal reserve system, the Japanese felt that 25 per cent was enough for such a system.
Mr. Fukai said that it was his personal opinion that a wise administrator would not lay great emphasis on this; Keynes40 was of the same opinion. The inclusion of a percentage in silver was of no interest to Japan.
Mr. Warburg said that they would not have to do it; they had an option.
Mr. Fukai said that he thought that putting up the price of silver would be a good thing for the world.
Mr. Tsushima inquired what had been the view of the French delegation.
Mr. Warburg replied that they had said that silver was not of interest to them; we had contended that it was—because of world trade—and had convinced them. They probably would not exercise the option but they would not obstruct.
Mr. Tsushima said that with regard to silver the Japanese had no particular views regarding the understanding to be arrived at between silver producing and silver using countries. If it would help stabilization of silver prices it would be a good thing for the world. As to debasement, the Japanese Government had taken no action. As to increase of content of silver, that question would involve the question of the budget. He wished to make a reservation: Japan could not afford to increase the silver content.
Mr. Warburg said that our suggestion was to remonetize when, as, and if budgets permitted.
[Page 542]A Japanese member asked whether we had any information on the position of India.
Mr. Warburg said that we had not talked the question over with them as yet.
Mr. Fukai said that with regard to public works in various countries the Japanese thought this should be left to the countries concerned. “Synchronization” seemed to them to be going too far.
Mr. Tsushima said that Japan considered it essential to adjust the undue burdens on debtors occasioned by fall of commodity prices.
Viscount Ishii asked what points would be considered at tomorrow’s meeting.
Mr. Warburg said that among the questions would be: tariff truce; treaties, bilateral and multilateral; and the most-favored-nation clause.
The meeting adjourned until 10:00 a.m., May 26.