NARCOTICS TRADE BOOSTED ARMY SCRIP

Japan used the opium trade of Shanghai's major dealer to prop up the
value of its military currency in occupied China during the war,
according to a leading expert on China's wartime economy, citing a
former secret document.

The latest finding in the document on the Japanese-run opium firm
Hung Chi Shan Tang, now kept in the National Diet Library, reveals
Japan used opium to gain economic hegemony over Chiang Kai-shek's
yuan-based legal tender in the 1940s, using it to bolster the
military "gunpyo" scrip, said Hideo Kobayashi, a professor at Waseda
University in Tokyo.

"It has been said that opium may have been used to support the value
of (Japan's) military currency, but this is the first glimpse at how
the system worked and the exact amount (of opium involved)," said
Kobayashi, author of a number of books on the war Japan waged and the
economy of occupied China.

Japanese forces issued gunpyo to procure materials in China, using
the scrip to subvert Chiang's legal tender.

In the document, Hajime Satomi, president of Hung Chi Shan Tang, said
his firm in 1941 started quoting opium prices in yen terms using
gunpyo, instead of legal tender.

"This means that to buy opium, (locals) would need to buy gunpyo
first by selling their legal tender," Kobayashi said. "This would
push up the value of gunpyo."

He also said Tokyo was engaged directly in the currency operation
involving opium.

A passage regarding a financial settlement for "Mongolian opium" that
appears on Page 11 of the 21-page document reads: "The impact on
gunpyo operations is so huge that the gunpyo vs. legal tender
operations have been all entrusted to the China Affairs Board and the
Zaimukan of the Finance Ministry."

The China Affairs Board was the wartime ministry on China affairs.
Zaimukan was a senior Finance Ministry position.

The document shows the amount of opium exchanged for gunpyo was
valued at "nearly Y100 million" in 1942.

"This is a tremendous amount. Opium would make a perfect weapon
(against legal tender) because its sales were huge," Kobayashi said.

To back up the gunpyo value, Japan shipped various goods to China,
ranging from cotton to sugar to industrial chemicals, which were made
available to locals in exchange for the military scrip at
distribution stations in occupied areas.

Official records showed the value goods Japan prepared to support the
military note stood at Y200 million in 1942. Opium, despite its huge
value shown in the internal document, is not shown in any other
records, Kobayashi said, adding, "Opium was too dirty and it has been
kept secret until now."