894.00/744: Telegram

The Ambassador in Japan (Grew) to the Secretary of State

148. My telegram No. 145, June 3, 5 p.m.

As of early this morning Konoe required only the formal acceptance by Kaya of the Finance portfolio to complete formation of the [Page 718] new Cabinet. It is expected that after Kaya has ascertained the character of the economic policies to be followed by the new Cabinet he will give his acceptance, and that formal investiture of Cabinet will take place today.
The selection of Konoe as Premier has been popular, the comment most generally heard being that the selection of the person favored over all others by public opinion is a significant indication of trend toward more normal condition. However, in one of his first statements after receiving command to form a Cabinet, Konoe announced that, although he would endeavor to include in his Cabinet two members of the political parties (which he has done), they would be selected on the basis of their personal merits and not as representatives of the parties. This statement has perceptibly cooled the ardor with which the parties acclaimed the news of Konoe’s appointment. There seems to be little doubt but that the parties now possess a destructive power, but their inability to put forward an intelligent and constructive program leads most observers to believe that Konoe’s present great popularity warrants his avoiding too close a sort of association with the parties.
The disclosure of composition of the new Cabinet has had an adverse effect upon the enthusiastic response of the press to selection of Konoe.
Comment by press and by individuals is that the continuance in office of present Ministers of War and Navy indicates that increased armament and doctrine of “increasing power of industrial production” favored by the armed services are to be among the Cabinet’s policies. In business circles the appointment to the Home Ministry of Baba, whose views on finance are considered to be unsound as well as unorthodox, is regarded with apprehension. Although it is reported that Kaya will if appointed follow the policies of his predecessor, it seems doubtful whether he has sufficient prestige and force to counteract the probable endeavors of Cabinet officers previously mentioned to give effect to policies leading toward more rigid state control over industry and toward uncontrollable financial inflation.
The collapse of the Hayashi Cabinet of itself has eliminated certain elements of uncertainty and the formation of a new Cabinet will undoubtedly tend to stabilize political and economic conditions. I shall withhold further effort at interpreting significance of the present change of government until the policies of the Konoe Cabinet have been disclosed and discussed in the press.
I hope to have an opportunity to call next week on Hirota.
Please make available copies to Commerce and Treasury.

To Peiping by mail.