793.94/6851: Telegram
The Ambassador in Japan (Grew) to the Secretary of State
[Received February 2—1:38 a.m.]
22. Despite official assurances that no new instructions have been given to the Japanese Minister to China, rumors of negotiations and proposals for new agreements between Japan and China continue to occupy the press.
From what can be learned here, it seems probable that the basic difficulty may be economic rather than political. The recent rise in the price of silver has upset trade with China, while the currency situation in Manchuria is causing the Japanese Army much concern. Reports, whose value the Embassy cannot estimate, indicate that the Nanking Government is having difficulty with its finances due to the hoarding of silver and its disappearance from circulation. In these circumstances, it is possible that the Chinese may ask for or the Japanese may offer some sort of assistance from Japan, although it is [Page 39] problematical just what Japan may be able to do. It seems improbable that Japanese money would be available in any quantity, and it is not clear what else would be acceptable, nor is it clear what compensation the Japanese would expect for whatever assistance might be offered or given.
Silver being the basic medium of exchange in China, the Government may be driven by its rising price to currency devaluation and to asking Japanese assistance in stabilizing exchange.
Repeated to Peiping.