The Ambassador in Japan (Grew) to the Secretary of State
Tokyo, August 13, 1932.
[Received August 27.]
DEAR MR. SECRETARY:
The outburst in Japan against your speech before the Council on Foreign Relations  savors distinctly of a tempest in a teapot if not of a guilty conscience on the part of the Japanese, for we now understand that the speech was merely an academic discussion of a hypothetical case, while the Japanese took it as a specific charge of guilt. Unfortunately I was unable to take any steps to mitigate the effect here, because neither the text of the speech nor a resume of its substance and intentions have reached me, and by the time the text arrives from Shanghai the incident will presumably be closed. However that may be, the Foreign Office has used the speech deliberately to pour fuel on the temporarily quiescent flames of public animosity against the United States. I say deliberately, because the violent Japanese press reaction was based not on the press despatches from the United States but on the Foreign Office's inflammatory interpretation of Debuchi's cabled account, and this interpretation was given to the Japanese press a day before it was released to the foreign correspondents.
This situation reminds me strongly of the efforts of the German Government, by calumniating foreign nations, to build up a public war psychology in 1914, the effort being repeated whenever some new venture, such as the indiscriminate submarine warfare, was about to be launched. Here in Japan the deliberate building up of public ani-
 Delivered August 8, 1932. For text, see Foreign Affairs, Special Supplement (October, 1932), vol. X, no. 1. (E-editor: Footnote 7 not used.)
mosity against foreign nations in general and the United States in particular has doubtless a similar purpose-to strengthen the hand of the military in its Manchurian venture in the face of foreign, and especially American, opposition. I believe that on the part of the Japanese it is a sign of weakness, not of strength. The internal economic and financial situation in Japan is serious and may become desperate. The plight of the farmers is very bad, many industries are at low ebb, unemployment is steadily increasing. The yen is falling and prices have not yet risen proportionately. Money cannot be obtained from abroad; I was recently told, although I cannot vouch for the reliability of the information, that the Government had tried without success to obtain loans from England, France and Holland in turn. It will become increasingly difficult to obtain domestic loans. This situation is not critical, but it may become so when the ability of the National Bank of Japan to absorb domestic bonds comes to an end. Meanwhile millions of yen are being squandered to support the Manchurian venture, of which the eventual economic advantage is highly problematical, and when the full purport of these expenses becomes known to the people, in their own serious deprivation, there is no telling what effect it will create. I believe that a steadily increasing anxiety exists among the Government and the thinking men of the country outside of the hot-headed military clique which refuses to face these facts. It seems to be primarily this military element-vocalized by such men as Shiratori -who believe that the best way to obscure these facts is to work the public into a patriotic and nationalistic fervor by representing foreign nations, particularly the United States, as trying to thwart Japan's efforts for alleged self-preservation.
Such a national temper is always dangerous. The German military machine, supported by a carefully nurtured public war psychology, took the bit in its teeth and overrode all restraining influences in 1914. The Japanese military machine is not dissimilar. It has been built for war, feels prepared for war and would welcome war. It has never yet been beaten and possesses unlimited self confidence. I am not an alarmist but I believe that we should have our eyes open to all possible future contingencies. The facts of history would render it criminal to close them.
In this connection the enclosed memorandum prepared by the Embassy,  which will be incorporated in a despatch, may be found significant.
JOSEPH C. GREW
 Toshio Shiratori, Director of the Bureau of Intelligence, Japanese Foreign Office.
 Not printed.