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11th July for an embargo on exports to Japan, and the second being Senator Vandenberg's motion of the 18th July for the abrogation of the Commercial Agreement of 1911 with Japan, the Administration suddenly announced on the 26th July its own decision to abrogate the treaty by executive action. Despite attempts to explain away this move, the news was received with something like consternation in Japan.
Nuremberg Congress.
Germany.
253. On the 18th July envoys representing the Japanese army, navy and commerce and industry left to attend the Nuremberg Congress on the invitation of the German Government.
German-Japanese Trade Agreement,
254. On the 28th July a trade agreement between the two countries was provisionally signed in Berlin, subject to formal ratification by both Governments.
Occupied Areas.
China.
255. On the 10th July Wang Ching-wei issued a statement urging the desirability of peace between Japan and China. This was timed to coincide with the meeting at Tsingtao of the Joint Commission of the North and Central China régimes. There were rumours that Wang would shortly be asked to become the head of a unified régime in China.
Military Operations.
256. Chungking was again bombed by Japanese naval aircraft on the 6th, 24th and 31st July, the last mentioned being the tenth raid of the war. United States Government, on the 10th July, made a strong protest to the Japanese Government regarding damage to United States property in previous raids on Chungking.
257. After the issue on the 16th July of a warning to third-Power nationals, Japanese forces began on the 18th a blockade of Swabue.
258. The Pearl River was closed by the Japanese military authorities for two weeks from the 28th July.
Foreign Interests.
259. On the 11th July the Kulangsu Municipal Council rejected the Japanese demands for reform of the administration of the settlement. Japanese obstruction of food and fuel supplies to the settlement continued and drew a sharp protest from the United States Government on the 17th July.
U.S.S.R.
Departure of Soviet Chargé d'Affaires.
260. On the 6th July M. Smetanin, Soviet Chargé d'Affaires, departed for Moscow, leaving the embassy in charge of the second secretary. Mongolia.
261. The fighting on the Mongolian frontier continued. Important Japanese offensives appear to have been launched on the 3rd and 25th July, and in the opinion of competent observers the Japanese had by the end of the month succeeded in driving back the Mongolian and Soviet forces to the line of the River Halha. There was a continuation of fighting in the air, in which the Japanese, as usual, claimed striking successes. They admitted, however, that on the 16th July hostile aircraft had succeeded in bombing the important railway centre of Fularki.
Saghalien.
262. Friction continued over the alleged Russian pressure on Japanese oil and coal interests in Saghalien. On the 24th July the Soviet Government rejected a protest which had been made by the Japanese Ambassador on the subject on the 29th July.
General Policy.
263. Statements of policy were made by Baron Hiranuma on the 6th July to the press, and on the 20th to the Asia Development Committee. The Prime Minister's language was, as usual, inconclusive, but his references to foreign affairs and to the external situation generally were less unfavourable from the British point of view than might have been expected. Reports from confidential sources indicated that he was personally strongly opposed to a military alliance with Germany and Italy. At the same time, there was reason to believe at the end of the month that a further effort would shortly be made by the extremist elements to secure a reconsideration of the alliance proposal.
INTERNAL AFFAIRS.
264. In spite of preoccupation with the conduct of the campaign in China, and with the complex international situation, the Japanese Government are not unmindful of the numerous problems which require attention at home, and consideration is now being given to certain important proposals.
265. In the first place it seems possible that a scheme for the formation of a separate Ministry of Trade may materialise in the near future. That is not a new idea, as it has been felt for many years past that there would be advantages in combining under one roof the various bureaux or sections devoted to matters of trade now existing in the Ministries for Foreign Affairs, Commerce and Industry, Agriculture and Forestry, Finance, and Overseas Affairs. The complex machinery of trade control which has been brought into being has rendered centralisation more important than ever, and it is understood from press reports that the Cabinet have agreed in principle that something must be done. The Planning Board has accordingly been asked to draw up a scheme, which is now receiving attention.
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266. Secondly, it appears that the matter of a thorough reform of the taxation system of the country, both as regards central and provincial taxes, will probably form the subject of discussion at the next session of the Diet. It is felt that the present system of taxation is too antiquated, and that as a result of temporary expedients in the way of increases in taxation it has become excessively complicated, with the natural result that the burden of taxation is unequally distributed. It is proposed, therefore, to introduce a radical reform with the object of equalising the incidence of taxation among different classes of the people and of giving elasticity to, and simplifying, the system as a whole. sub-committee of the Taxation System Enquiry Commission is engaged upon an examination of the problem, and it has been stated in the press that their aim is to secure an increase in revenue of the amount of 500 million yen.
267. The Government is also taking steps to put into effect certain provisions for a Law for the Control of the Distribution of Rice, which was passed during the last session of the Diet. The object of this measure is to discourage specula- tion in rice and to guard against any abnormal increase in price owing to war conditions. The law provides, inter alia, for the establishment of a Japan Rice Company, which will operate markets for dealings in the cereal, these markets taking the place of the existing rice exchanges, which will be abolished.
Anniversary of the Loukowkiao Incident.
268. The 7th July was observed in Japan as a day of self-denial. The people had been urged to shun amusements and to take only the simplest meals. Notices were displayed in the streets with the slogan: One soup, one dish," and the consumption of alcoholic drinks and smoking were deprecated. Cafés and bars closed for the day and cinemas and theatres closed at P.M. The brilliant neon lights so dear to the Japanese heart were extinguished, and it is reported that the Yoshiwara was deserted.
269. On the evening of the 6th July the Prime Minister gave a press inter- view, in the course of which the Government's aims and intentions for the conclusion of the China incident were restated.
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