Foreign Relations of the United States Diplomatic Papers, 1939, The Far East, Volume III

894.51/612: Telegram

The Chargé in the United Kingdom (Johnson) to the Secretary of State

London, February 3, 1939—7 p.m.
[Received February 3—6 p.m.]

157. 1. With reference to the questions raised in the Department’s 77, January 30, 5 p.m., inquiries in the City indicate as regards (a) British banks and firms still extend to certain Japanese interests short term credits but on a decidedly reduced scale. The old lines of credit that are kept in being are only a fraction of the amounts normally extended in the past. They have been progressively reduced since July, 1937, with the shooting of Ambassador Knatchbull-Hugessen⁶⁶ considerably accelerating the process. The method employed in most cases has been to reduce the credit or terminate it altogether when the facility expires and comes up for renewal. The London discount market is reluctant to take Japanese paper and such as is in circulation carries 2% instead of the normal three quarters-seven eighths. The best unofficial estimate of total current credit facilities to Japanese interests places the upper limit at 500,000 pounds. In the given circumstances new lines of credit would be difficult to establish here except against adequate security. (b) The main agency in London used in pegging the yen to the pound is the London branch of the Yokohama Specie Bank which holds sterling balances in British banks and is also believed to have the facility of drawing on a dollar account with the Yokohama Specie Bank in New York and perhaps the regular New York banks as well.

It is understood that in Japan pound drafts are issued at a fixed rate of exchange and these are of course banked and cleared through London. Furthermore, London foreign exchange dealers in order to buy yen must do so through the London branch of the Yokohama Specie Bank (or those of the Mitsui and Mitsubishi banks which are in a measure subservient participants with the former) and at the rate of 1 shilling 2 pence since a certificate of the rate from such a Japanese bank is required in order to effect the necessary transfers of funds in Japan. Likewise the above mentioned London branches are practically the only sellers of yen in this market for the reason that accounts remain blocked in Japan unless a license for such a sale is granted by the Japanese authorities.

Thus the Yokohama Specie Bank is in a position in cooperation with the other Japanese financial institutions to conduct by means of its pound and dollar assets the necessary operations to preserve the yen relationship to sterling. It is generally believed that the London Yokohama Specie Bank has not indulged in large scale gold operations in the recent past.

The basis for a credit naturally differs occasionally and is difficult to ascertain but it is more than doubtful as to whether any legal connection exists between a credit given say by a British joint stock bank to a Mitsui interest and the sterling balance which the Mitsui Bank, Limited, may have with that British bank but it is possible that the presence of such a balance might have a psychological effect in influencing the British joint stock bank partially to maintain a facility for an old and valued trading connection.

2. Incidentally Rogers⁶⁷ arrived in London a few days ago having left Chungking by air a week previously and no doubt the customs loans question⁶⁸ precipitated his coming as much if not more than the general situation. If the Department desires in this connection appropriate inquiries to be made here I trust it will so instruct.⁶⁹

Johnson

66. The British Ambassador in China, while motoring from Nanking to Shanghai, was wounded by Japanese attack from the air late in August 1937.
67. Cyril Rogers, of the Bank of England, Adviser to the Central Bank of China.
68. See pp. 800 ff.
69. The Department replied that it would welcome “any information in regard thereto which might become available without special effort on the part of the Embassy.”