No. 578
The Counselor of the Embassy in Japan (Bond) to the Director of the Office of Northeast Asian Affairs (Young)


Dear Ken: I am writing in response to your letter of May 191 dealing with the subject of a possible loan to Japan. The problem has received the careful consideration of officers in both the Political and Economic Divisions, and the observations which follow represent their combined judgment. This letter has been seen by Ambassador Murphy and has his approval.


For many months the Prime Minister has urgently sought a substantial loan from the United States; he has discussed the matter with Mr. Dodge, Ambassador Dulles, General Marquat, and Ambassador Murphy. The figure given to General Marquat for power development and roads amounted to nearly $1,500,000,000. The Prime Minister appears to be motivated chiefly by political considerations, particularly a desire to demonstrate that the United States is willing to continue its support of the Japanese economy. It is possible also that he believes an unrestricted loan could be utilized advantageously through judicious distribution in a campaign year.

More recently the Minister of Finance in separate conversations with Ambassador Murphy and the Economic Counselor proposed a line of credit of $100 million and indicated a willingness to engage that such a line of credit would not be utilized until the dollar reserves of Japan declined to less than $500 million. The Minister of Finance indicated that a line of credit of the magnitude proposed would be adequate to demonstrate United States support of Japan and would be of material assistance to the Liberal Party in the political campaign anticipated this fall. He stated his awareness of the larger request made by the Prime Minister but implied that the latter would find the more modest proposal acceptable. The Prime Minister has apparently instructed Ministers Okazaki and Ikeda and Ambassadors Araki and Tsushima to press for the extension of such a line of credit.

[Here follows a detailed analysis of the economic justifications for, and political considerations in behalf of, loans for Japan.]

[Page 1285]


From the standpoint of economic considerations, it is the opinion of the Embassy that a line of credit of $100 million, the activation of which would be made conditional upon the size of the Japanese dollar reserves, would serve to encourage the utilization of such reserves in connection with a program of economic development by providing a reserve for contingencies. In addition to the protection afforded by the International Monetary Fund, such a line of credit would provide further security and confidence in the use of the yen as a currency in international trade. The proposed line of credit would also have the advantage of being called into use only when needed, and creating interest charges only as employed.

From the political standpoint it is certain that the Yoshida administration believes the extension of the proposed line of credit would be politically advantageous to it. In all probability this advantage would accrue to not only the Liberal Party in the forthcoming election, but also to the Yoshida faction in its contest for control within that Party against opponents led by Hatoyama. Should the Liberal Party lose the next election, or should the Yoshida faction lose control of the Liberal Party, it is by no means certain that the resulting Government would be so cordially disposed. Since the Prime Minister is of the firm opinion that the extension of the proposed line of credit would be of material assistance, and since that line of credit would be employed only if required and for the stabilization of the yen, the Embassy believes that compliance with the Prime Minister’s request would be in the best interest of the United States. The Embassy recommends, therefore, that the Department should seek to obtain for Japan the requested line of credit of $100 million.

If the Export-Import Bank of Washington is not favorably disposed toward the extension of lines of credit, particularly for the purpose of currency stabilization, it is suggested that the Department may wish to explore with the Treasury Department the possibility of utilizing for the purpose in question the currency stabilization fund which is under the control of the Treasury and in the past has been employed for such purposes. It is also possible that the Reconstruction Finance Corporation could be interested in the extension of such a line of credit.2

Sincerely yours,

  1. Not printed. (894.10/5–1952)
  2. In a memorandum of his conversation held with Ambassador Eikichi Araki on Aug. 10 in Washington, Frank Waring, Economic Counselor of the Embassy in Tokyo, stated in part that he had learned from both the Ambassador and from Herbert Gaston, Chairman of the Export-Import Bank, that the Bank was considering the establishment of a line of credit under which individual loans might be made to Japan. “I told the Ambassador that it had been the policy of the United States to suggest to member nations of the International Bank that they first attempt to obtain required funds from that institution and he reiterated his statement made to me on the evening of August 6 that he intended to write Governor [President] Black requesting that an investigating mission be sent by the Bank to Japan.” (894.10/8–1052) Ambassador Araki had taken up his post in June.

    Ambassador Araki and Ambassador Juichi Tsuchima, Financial Adviser to the Foreign Office, met with Acheson on Oct. 3. A portion of Young’s memorandum of the talk reads:

    “Ambassador Araki then stated that the Government of Japan desired financial assistance from the United States to assist in power and road development. I replied that the International Bank for Reconstruction and Development was the proper way to take up this question, and that I was gratified that the Bank is about to send a survey team to Japan, which both Ambassadors agreed would be helpful.” (894.10/10–52)