c. Shipping.  Losses of Japanese shipping during 1942 and
 
1943 have exceeded construction.  Losses in dry cargo vessels
 
are being partially compensated for by improving railroad
 
transportation in SOUTHEASTERN ASIA, and by a program of
 
wooden shipbuilding. Tanker losses, despite more effective
 
operation made possible by the rehabilitation of oil fields
 
and refineries near the combat zones, if continued at the
 
present rate will seriously interfere with Military operations ,
 
in the future.  Movement of Japanese troops will not be cur-
 
tailed until the shipping situation becomes more critical.
 
     d. Morale. Japanese morale is of a very high order.
                                 
                  JAPAN'S CAPABILITIES FOR 1943
 
8.   Major courses of action ooen to JAPAN in 1943
 
     a.  Remain on the strategic defensive and consolidate her 
 
gains, undertaking limited offensive operations in the 
 
AUSTRALIA - NEW GUINEA SOLOMONS area, CHINA, BURMA, the 
 
ALEUTIANS, and along the lines of communication between the 
 
HAWAIIAN ISLANDS and AUSTRALIA.
 
     b. Renew the general attack on CHINA.
 
     c. Attack INDIA.
 
     d. Attack SIBERIA.
 
     e. Renew an offensive in the AUSTRALIA - NEW GUINEA-
 
SOLOMONS area.
 
     f.  Intensify the war of attrition against shipping
 
9. Most likely course of action. JAPAN's most likely course
 
of action will be influenced by the outcome on the Russian Front.
 
a. Russian defeat clearly imminent.
 
     In all likelihood JAPAN will attack SIBERIA.
 
b.  Russian defeat not imminent
 
     JAPAN will probably remain on the strategic defensive,
 
exploit and consolidate her gains, intensify the war of attri-
 
tion against shipping, and undertake limited offensive operations
 
 in the AUSTRALIA - NEW' GUINEA- SOLOMONS area, CHINA,.
 
and BURMA and vigorously counter UNITED STATES offensive
 
action in the WESTERN ALEUTIANS.
                                
                              -8-