894.10/12–1251
Memorandum of Conversation, by the Officer in Chargé of Economic Affairs in the Office of Northeast Asian Affairs (Hemmendinger)
Subject: Japanese Financial Problems
| Participants: | Governor Hisato Ichimada—Bank of Japan |
| Mr. Seiichi Motono—Adviser to Japanese Delegation | |
| Mr. Joseph M. Dodge—Adviser to U.S. Delegation | |
| Mr. Noel Hemmendinger—Adviser to U.S. Delegation |
[Here follows discussion of the Japanese Development Bank and of the Japanese foreign exchange position.]
3. Governor Ichimada referred to Japan’s gold holdings and suggested that a part of the gold should be deposited with the IMF before ratification of the Treaty and that the balance be used as a basis for credit. Otherwise he feared that it might be subjected to demands for reparations. Mr. Dodge said he had recommended sometime ago that the gold be put in the Federal Reserve Bank in New York but that there had been political objections. He suggested that there would probably still be political objections to this course. Mr. Hemmendinger called attention to the FEC decision that Japan’s gold holdings should ultimately be used for reparations and stated that although the United States has insisted this decision is subject to the United States priority for occupation costs, the United States position had not been accepted by all governments. He also pointed out that once the Treaty entered into force the FEC decisions would have no standing and Japan could do as it liked with the gold. He thought that from a political standpoint it was clearly preferable that the gold stay where it is until the Treaty enters into force.
Governor Ichimada expressed fear that the Filipinos might try to attach the gold as reparations. He suggested that this could be forestalled by the United States accepting the gold as repayment of GARIOA aid and then making the equivalent available as a loan. Mr. Hemmendinger stated that in his judgment neither SCAP nor the Department of State would countenance such a course of action before the entering into force of the Treaty, as it would put both Japan and the United States in a bad light.
Governor Ichimada explained that he was now referring to the period after the Treaty and suggested that the gold be used to repay the GARIOA advances and then used as a basis for credit. He asked whether the United States did not assert a priority for the GARIOA claim.
Mr. Hemmendinger stated that the United States took the position that its claim for GARIOA assistance had priority, but that in practice it would be necessary to examine all the claims against Japan together. He suggested that the approach to the problem involved in Governor Ichimada’s suggestion represented an unfortunate attitude toward the reparations obligation, and stated that the United States was prepared to see the reparations obligation weighed by Japan along with its obligations to the United States.
Mr. Dodge observed that he did not see much merit to the linking of the use of the gold to the GARIOA obligation, and reiterated that the United States did not want to see the Japanese give merely lip service to the reparations obligation. He reminded Governor Ichimada of the Philippine and Indonesian attitudes as voiced only [Page 1338] today at the Peace Conference, and suggested that any surplus revenues in the Japanese budget should be applied first of all to Japanese Treaty obligations. He asked Governor Ichimada what were his views in round figures on the GARIOA obligations. Governor Ichimada replied that he thought that portion which had gone into Japanese rehabilitation as distinguished from purposes of the occupation should be repaid, and estimated this at between $500,000,000 and $700,000,000.
4. Governor Ichimada brought up the subject of U.S.-Japanese economic cooperation and stated that it was very difficult for Japan to meet demands which the United States might make without knowledge in advance of what might be required. Mr. Dodge pointed out that the only segment of this program which has yet assumed concrete form is aluminum production. It is as difficult for the United States as for Japan clearly to foresee what may be asked, as many conflicting interests are involved. The principle has been established at a high level and some progress has been made on implementation, but it cannot be expected to be rapid. The situation is likely to remain such that Japan will have opportunity to meet the demands made on her.
Governor Ichimada said he would like to see Japan’s idle plants and excess manpower put to use before U.S. capacity is expanded. If this is not done, there will tend to be a great unbalance between the respective economies. Mr. Dodge replied that the possibilities in the excess industrial capacity are thoroughly understood in the United States Government, but the United States cannot be expected to blueprint the Japanese economy. It is bound to regard the problem primarily from the standpoint of U.S. bottlenecks and the United States cannot be expected to rearrange its production to meet the needs of Japan.
Governor Ichimada said that he had been trying to get U.S. industrialists to consider the possibilities of production in Japan. Mr. Hemmendinger suggested that that is how U.S.-Japanese economic cooperation must work, that is, through the manifold arrangements made by various U.S. concerns and by U.S. Government orders in accordance with a general principle, rather than through a detailed governmental plan.1
[Page 1339][Here follows discussion of the Japanese budget and renewed discussion of the Japanese foreign exchange position.]
- In a letter of December 14 to Frank A. Waring, Economic Counselor of the Office of the U.S. Political Adviser to SCAP, Mr. Hemmendinger indicated in part that little had been done since September with regard to financial negotiations with Japan because it had seemed desirable to await the result of discussions on “security expenditures” which General Ridgway had been authorized to hold with Prime Minister Yoshida, discussions regarding which neither the State nor the Army Departments had as yet received word. “Every analysis of our economic position vis-à-vis Japan is brought up short at the moment by inability to predict the volume of defense procurement in Japan, or even to know whether it will be of major proportions.” He stated the principal question before the Department was of whether to support major loans to Japan in the near future. (894.00/12–1451) See Mr. Yoshida’s letter of December 22, p. 1465.↩