Japan’s de facto bankruptcy proved a crucial factor in the failure of negotiations for a peaceful settlement with the United States. The diplomatic maneuverings of 1940–41 have been exhaustively described in documents, memoirs, diaries, interviews, postwar investigations, and war crimes trials.1 This chapter briefly summarizes the events, focusing on the significance of the dollar freeze.
U.S. resentment against Japanese aggressions began with the seizure of Manchuria in 1931 and accelerated when Japan assaulted China in 1937. The country initially reacted with diplomatic scoldings, aid to China, and embargoing exports of a few arms-related products. In 1940 tensions grew acute when Japan signed the Tripartite Pact with Germany and Italy whereby the three powers pledged to assist each other in wars, under certain circumstances. The United States, inching toward war in the Atlantic through pro-British policies, grew concerned that it might have to fight Japan as well.
Negotiations for a settlement of tensions began in earnest in April 1941. All discussions were conducted in Washington between Ambassador Kichisaburo Nomura (assisted after 15 November by special envoy Saburo Kurusu) and Secretary of State Cordell Hull. The Japanese diplomats also met directly with President Roosevelt, and occasionally with civilian and naval officials Nomura knew personally. Other U.S. officials played relatively minor roles.2
Hull advanced four “principles” for Asia: respect for the territory and sovereignty of all nations, noninterference in their internal affairs, equal commercial opportunity, and maintenance of the status quo in the Pacific—the principles established by the Nine Power Treaty of 1922. For Japan the main stumbling block was surrendering its decade of conquests by withdrawing from Indochina and China, perhaps even from Manchuria. In Japanese eyes a retreat would mean giving up any possibility of gain from a war that had cost two hundred thousand dead soldiers, required huge outlays of national treasure, and caused economic hardships for its people. The United States further demanded assurances that Japan would renounce the Tripartite Pact, or at least refrain from fighting it as an ally of Hitler. To prod Japan, Washington embarked on three programs: arms and financial aid to China, a buildup of forces at Pearl Harbor and in the Philippines, and barring exports of commodities needed for its own defense.
The Japanese position was, simply, resistance to Hull’s proposals: no U.S. interference in China-Japan affairs, no military withdrawals from occupied territories, maintaining ties with Germany, and continuing trade with the United States. In 1941 events in Europe emboldened Japanese leaders. Hitler’s attack on Russia on 22 June quelled the army’s fears of a Soviet attack on the empire, and it joined the navy in favoring a war to seize the resources of western colonies in Asia. On 24 July, Japan, having coerced Vichy France, occupied southern Indochina, triggering the U.S. freezing orders two days later and those of the Allies soon after.
After 26 July 1941 Japan’s priority shifted to demanding an end of the dollar freeze, or at least an easing so that deliveries of oil and perhaps other strategic commodities might resume. At first Tokyo phrased the aim in generalities while its representatives in the United States searched for loopholes. In August banking and consular officials petitioned for financial licenses to pay for two shiploads of oil and probed the possibilities of paying with dollars or gold held outside the frozen accounts. They were rebuffed at every turn by the Foreign Funds Control Committee dominated by Dean Acheson.
Early in August Prime Minister Prince Fumimaro Konoe launched an initiative to meet with President Roosevelt personally, perhaps in Hawaii or Alaska, in what later generations would call a summit meeting. To placate the generals and admirals, Foreign Minister Teijiro Toyoda drafted demands that the United States halt reinforcement of the Southwest Pacific, mediate a peace settlement in China (a euphemism for abandoning aid to Chiang Kai-Shek), and restore normal commercial relations (a euphemism for ending the freeze). In return Japan offered not to advance beyond Indochina and to withdraw troops from China when the war ended at some vague future date. FDR was intrigued but the State Department deemed the tradeoffs unacceptable, especially because Japan refused to start evacuating promptly. The United States declined the summit offer.
Japanese military and naval leaders moved forward with plans to launch a war before the year was out. On 6 September 1941 an imperial conference agreed to make a decision during the first ten days of October about war against the United States, Britain, and the Dutch Indies (a deadline gradually moved back to 29 November) unless Japan’s demands were met.3 On 18 September Acheson disclosed that the United States had rejected Japan’s last-ditch barter scheme of oil for silk. Mobilizing for an attack began in earnest in Tokyo in the second half of the month. Nevertheless, Toyoda wished to test other avenues of negotiation. The deadlock between the war hawks on one hand and Konoe and Toyoda, who favored some troop withdrawals, on the other hand, led to the fall of Konoe and his replacement as prime minister by General Hideki Tojo on 17 October. Last-chance diplomacy passed to a new foreign minister, Shigenori Togo.
Japanese agents had continued to poke about desultorily for token financial licenses for oil or minor freeze-evading transactions, without success. On 24 October, however, Acheson told Counselor Tsutomo Nishiyama that the looming insolvency of the Yokohama Specie Bank in New York, where Japan had mobilized its dollars—a bank failure engineered by the U.S. government’s barring the bank from collecting money for silk delivered to the United States before the freeze—would permanently lock up Japan’s main holding of blocked dollars. It was clear that oil cargoes would never sail. This casting away of hope immediately preceded Tokyo’s decision to demand financial relief, explicit in time and very substantial in amount, countered by American musings of barter concessions much below Japanese needs.
As resource stockpiles dwindled, and with the military’s reluctant consent, Togo proposed “Plan A,” an offer reciting kinder words about free trade in China but standing firm on the Axis pact and rejecting troop withdrawals for twenty-five years. As expected, Hull rebuffed it. Togo followed with “Plan B,” an interim truce. Japan would evacuate Indochina if the United States kept its nose out of China, resumed trade promptly at pre-freeze levels, supplied oil in abundance, and prodded the Dutch to supply more.4 The army insisted on amending Plan B so that “the United States will promise to supply Japan with the petroleum it needs.” On 14 November the generals defined their terms: The United States must sell a tonnage of oil equivalent to 42 million barrels per year (converted here at 7 barrels per metric ton), including 10.5 million barrels of avgas, and ensure another 14 million barrels from the East Indies. If the Dutch did not agree, Japan would occupy the Indies. If the United States did not comply one week after signing an agreement, war would begin. Togo and Tojo scaled down the extravagant demands to 28 million barrels of U.S. oil, still a wildly improbable figure 34 percent greater than the annual rate of U.S. sales in January–July 1941. The amount was 259 percent greater than the 7.8 million barrel annual quota based on 1935–36 that Washington had contemplated in August for possible trade resumption. Avgas had been effectively embargoed since December 1939. Nomura did not present the exorbitant demand because Hull’s response to Togo’s first plan intervened.5
In November special ambassador Saburo Kurusu arrived to assist Nomura, whose English was not the best. As presented to Hull on 20 November, Plan B proposed evacuation of Indochina, American noninterference in China matters, restoring pre-freeze trade, including an undefined volume of oil, and helping obtain Indies resources. Considering the plan “preposterous,” Hull pondered a response, urged by the military services to buy time for defense preparations and by China and England not to go soft.6 On 18 October Hull had mused to Lord Halifax, the British ambassador, about a minor swap of silk for cotton—not oil—in exchange for a promise of a status quo in the Pacific. Anxious to avoid a rupture, the Japanese envoys suggested another humble accommodation: small quantities of U.S. rice and oil for Japan, far less than its full requirements, with guarantees that none would go to its armed forces. Hull was willing to think about it. Roosevelt informed Winston Churchill that the United States might thaw the freeze slightly on quasi-barter terms, strictly for civilian goods, for a three-month trial. The United States would license exports of food products, ships’ bunker fuel, pharmaceuticals, raw cotton worth up to six hundred thousand dollars per month, and some petroleum for civilian needs while encouraging the Dutch to supply more. Yet the United States would not unfreeze Japan’s dollars. Instead, it would buy Japanese products, two-thirds of which was to be raw silk—about 5 percent of the pre-freeze rate of silk purchases—just sufficient to finance the U.S. exports and to service Japanese bonds owned by Americans.7 But the gesture, overtaken by the onrushing crisis, was never offered to Japan.
For six crucial days in November Hull played with notions of a modus vivendi (“manner of living”), a standstill of three months during which Japan would abandon southern Indochina, limit forces in the north, and commence peace discussions with China. In return the United States would unfreeze some Japanese dollars and resume some exports, although export controls in effect “for reasons of national defense” would remain. It would encourage the British and Dutch to act similarly. Between 20 and 26 November, Hull reviewed a slew of proposals and modifications from administration officials that watered down his proposal. Acheson’s boastful report of the excellent results of the financial freeze arrived on his desk (chapter 17). By 24 November Hull’s draft conceded a barter-type exchange of raw silk for oil and other goods, amounts not specified, but no release of blocked dollars.
The eviscerated modus vivendi was never offered to the Japanese. Allied scouting planes spotted a troop convoy heading for Thailand and Malaya. Landings there were sure to provoke war. On 26 November Hull’s definitive response, approved by FDR, retreated all the way back to stiff-necked demands for the four principles and unlinking from Germany. Tojo deemed it an ultimatum.8 When six Japanese aircraft carriers sortied from the Kurile Islands, Washington sent a war warning to Pearl Harbor and other bases. An imperial conference of 1 December gave up on negotiations and decided irretrievably that the empire would attack. On 4 December the southern invasion force sailed for Malaya from Hainan Island. On the sixth Roosevelt made a futile personal appeal for peace to Emperor Hirohito. On 7 December Japan attacked Pearl Harbor. The two nations were at war.