Japan and the United States were not at war at the time. The Japanese claimed that they did not see the United States flags painted on the deck of the gunboat, apologized, and paid an indemnity. Nevertheless, the attack and the subsequent Allison incident in Nanjing caused U.S. opinion to turn against the Japanese.
A flat-bottomed craft built in Shanghai specifically for river duty, ''Panay'' served as part of the U.S. Navy's Yangtze Patrol in the Asiatic Fleet, which was responsible for patrolling the Yangtze River to protect American lives and property.
After invading China in the summer of 1937, Japanese forces moved in on the city of Nanking in December. ''Panay'' evacuated the remaining Americans from the city on December 11, bringing the number of people aboard to five officers, fifty-four enlisted men, four U.S. embassy staff, and ten civilians.
The following day, while upstream from Nanking, ''Panay'' and three Standard Oil s, ''Mei Ping'', ''Mei An'', and ''Mei Hsia'', came under attack from Japanese naval aircraft. ''Panay'' was hit by two of the eighteen 60-kg bombs dropped by three Yokosuka B4Y Type-96 bombers and strafed by nine Nakajima A4N Type-95 fighters. The ''Panay'' sank; three men were killed, and forty-three sailors and five civilians were wounded.
Two newsreel cameraman were aboard during the attack , and were able to film part of the attack and, after making the shore, the sinking of the ship in the middle of the river. Survivors were later taken on board the American vessel and the and . Earlier the same day, a Japanese shore battery had fired on HMS ''Ladybird''.
It was a nervous time for the American to Japan, Joseph C. Grew, who feared the ''Panay'' incident might lead to a break in diplomatic ties between Japan and the United States. Grew, whose experience in the foreign service spanned over thirty years, "," the U.S. Navy ship that blew up in Havana Harbor in 1898. The sinking of the ''Maine'' had propelled the United States into the Spanish-American War. Grew hoped the sinking of the ''Panay'' would not be a similar catalyst.
The Japanese government took full responsibility for sinking the ''Panay'', but continued to maintain that the attack had been unintentional. The formal apology reached Washington on Christmas Eve.
Although Japanese officials maintained that their pilots never saw any American flags on the ''Panay'', a U.S. Navy court of inquiry determined that several U.S. flags were clearly visible on the vessel during the attacks. Four days before the apology reached Washington, the Japanese government admitted that the Japanese Army had the ''Panay'' and the survivors after the navy airplanes had bombed it. The Japanese government paid an indemnity of $2,214,007.36 to the United States on April 22, 1938, officially settling the ''Panay'' incident.
But, US Navy cryptographers had intercepted and decrypted traffic relating to the attacking planes which clearly indicated that they were under orders during the attack, and that it had not been a mistake of any kind. This was not released for the obvious secrecy reasons.
Immediately after the ''Panay'' bombing, a lesser known aspect of the story started to unfold. In the days following the ''Panay'' incident, Japanese citizens began sending letters and cards of sympathy to the American embassy in Tokyo. Ambassador Grew wrote that "never before has the fact that there are 'two Japans' been more clearly emphasized. Ever since the first news of the ''Panay'' disaster came, we have been deluged by delegations, visitors, letters, and contributions of money — people from all walks of life, from high officials, doctors, professors, businessmen down to school children, trying to express their shame, apologies, and regrets for the action of their own Navy." In addition, "highly placed women, the wives of officials, have called on Alice without the knowledge of their husbands." The ambassador noted, "that side of the incident, at least, is profoundly touching and shows that at heart the Japanese are still a chivalrous people." These signs of sympathy were expressed as the ambassador was receiving word of possible atrocities being committed by Japanese forces in China.
While most letters of sympathy were sent to the embassy in Tokyo, a few were sent to the Navy Department in Washington, D.C. One noteworthy group of letters received by the navy was from thirty-seven Japanese girls attending in Tokyo. The letters, each written in English and dated December 24, 1937, extended their apologies for the sinking of the ''Panay''. By coincidence, the girls' letters are dated the same day the Japanese government's formal apology reached Washington. The letters are very similar in content. The typical letter reads, "Dear Friend! This is a short letter, but we want to tell you how sorry we are for the mistake our airplane made. We want you to forgive us I am little and do not understand very well, but I know they did not mean it. I feel so sorry for those who were hurt and killed. I am studying here at St. Margarets school which was built by many American friends. I am studying English. But I am only thirteen and cannot write very well. All my school-mates are sorry like myself and wish you to forgive our country. To-morrow is X-Mas, May it be merry, I hope the time will come when everybody can be friends. I wish you a Happy New Year. Good-bye."
Some of the girls enclosed postcards of beautiful Japanese places and scenes, while others sent Christmas cards and holiday wishes. One girl included a drawing of a Christmas candle burning bright with holly at the bottom. Several of the girls included their ages, which ranged from around eight to thirteen. Many of the letters are written on intricately decorated stationery. Each envelope bears the identical address: "To the Family of the 'Paney' C/O U.S.A. Navy Department, Washington, DC U.S.A." While each letter seems to be penned individually, the envelopes appear to have been addressed by the same person, possibly their teacher.
Three months later, a naval officer sent a reply to the principal of St. Margaret's School, thanking the girls for the cards and letters. The officer noted, "The kind thoughts of the little girls are appreciated, and it is requested that you inform them of this acknowledgement." Although the girls' letters were addressed to the families of the ''Panay'' victims, it does not appear that they made it any further than the Navy Department.
Other letters from Japanese individuals and organizations contained gifts of money along with expressions of regret. These donations caused a problem for the Navy Department. One letter from ten Japanese men expressed their sympathy over the ''Panay'' incident and included a check for $87.19. The men claimed to be retired U.S. Navy sailors living in Yokohama, and the letter, written by Kankichi Hashimoto, stated that "this little monetary gift is the instrument through which we hope to be able to further convey our sympathy with the bereaved families of the members of the Panay." The navy returned the check but informed the gentlemen that the U.S. ambassador in Tokyo had received a number of similar letters and gifts and that a committee was being formed in Japan to accept such donations. The donors were almost back to square one. They had originally approached the American consulate in Yokohama to donate three hundred yen. The consular staff said that they could not accept the contribution and suggested donating the money to the Japanese government. The former sailors turned down this suggestion and chose instead to send their donation to the Navy Department in Washington.
After being turned down by the navy, Mr. Hashimoto approached the U.S. naval attaché at the American embassy in Tokyo with a check for three hundred yen. The attaché, Capt. Harold Bemis, informed Ambassador Grew that a Mr. K. Hashimoto had brought in a contribution from the Ex-U.S. Navy Enlisted Men's Association of Yokohama. Bemis further told the ambassador that Hashimoto requested that the names of the former sailors be withheld from the Japanese authorities and public. The donor feared that his group's motives might be misconstrued because of their connection with the U.S. Navy but had no objection to their names being published in the United States.
Letters and cards of sympathy and apology continued to pour into the American embassy in Tokyo. Meanwhile, the increasing number of donations from several sources had the State Department scrambling to come up with a policy on how to handle the monetary gifts. Four days after the sinking of the ''Panay'', Grew sent a telegram to Secretary of State Cordell Hull, presenting the problem and requesting advice. With cash donations coming into the embassy by mail and in person, the contributions were creating what the ambassador described as "a delicate problem." As Grew explained to Hull, "Cash donations to Americans in the disaster are being brought in or sent to the embassy and we hear that the newspapers and various Government departments are receiving donations for transmission to us." While the ambassador attempted to turn away many of the donors, he explained to the secretary of state, "On the other hand the donations are all of trivial amounts so that sentiment is chiefly involved in the problem and to return the donations might give rise to a misunderstanding of our attitude."
Grew was concerned that accepting any money from the Japanese people might interfere with the official indemnity the Japanese government had already agreed to pay. Expressing his concern to Hull, he wrote, "We realize that the acceptance of the donations for the purpose for which they are offered might prejudice the principle of indemnification for which the Japanese Government has assumed liability." The ambassador was in a difficult position: accepting the money posed one set of problems, while refusing the contributions posed another. Grew did not wish to offend the contributors, explaining that "logical grounds for refusal are difficult to explain to people who know of no other way to express their regrets over the disaster." One suggestion offered in Grew's telegram was to accept the donations and give the money to the American Red Cross for relieving Americans in China. The ambassador ended the telegram by requesting the State Department's guidance on the matter as soon as possible.
The Navy Department also dispatched a telegram to the State Department to inform them that the Japanese junior aide navy minister had presented the naval attaché in Tokyo with ?650.11 that had been donated by several organizations and individuals. The Navy Department also included part of a dispatch from the naval attaché in which he informed them that "as this is but one of many popular expressions of public sympathy and concern manifested during past three days and furthermore is a Japanese custom which if not accepted by our government might lead to misunderstanding, it is recommended that same be accepted in the spirit in which offered." Similarly Adm. Harry Yarnell, commander of the U.S. Navy's Asiatic Fleet, was also offered a large sum of money by personnel of the Japanese Third Fleet but declined the offer.
In a telegram of December 18, Secretary of State Hull replied to Grew, "In view of the apparent sincerity of feeling in which the donations are being proffered and of the likelihood that a flat rejection of such offers would produce some misunderstanding of our general attitude and offend those Japanese who make such a gesture, the Department is of the opinion that some method should be found whereby Japanese who wish to give that type of expression to their feelings may do so."
One of the problems posed by the contributions involved the difficulty of the U.S. government accepting money. Hull explained that "the Department feels, however, that neither the American Government nor any agency of it nor any of its nationals should receive sums of money thus offered or take direct benefit therefrom." Hull suggested that Grew approach Prince Tokugawa Iesato or another Japanese gentleman, "inquiring whether he would be willing to constitute himself an authorized recipient for any gifts which any Japanese may wish voluntarily to offer in evidence of their feeling, public announcement to be made of such arrangement and an accompanying announcement that funds thus contributed will be devoted to something in Japan that will testify to good will between the two countries but not be conveyed to the American Government or American nationals."
Prince Tokugawa was president of the America-Japan Society, which had been formed in 1917 to promote a better relationship and understanding between the people of Japan and the United States. The society was formed in Tokyo and included prominent leaders from various fields; Viscount Kaneko Kentaro was elected as the first president, and U.S. Ambassador Roland Sletor Morris served as the first honorary president.
State Department's position
From the beginning, the State Department's position was that none of the families of those killed or the sailors or civilians wounded would receive any of the contributions. Nor would any office or department of the federal government accept the money. The State Department also expressed the desire that any necessary arrangements be made promptly. Hull did not wish to keep the Japanese people waiting for a decision on what was to become of the money they donated. A prolonged delay could lead to misunderstanding, especially if a decision was reached months later to return the money to the donors.
The State Department telegram of December 18 also set forth, at least for the time being, that only the American ambassador in Japan and the could accept donations related to the Panay incident. Several American consulates were receiving money, including consulates at Nagoya, Kobe, , and Osaka, in Japan; Taipei, Taiwan; Keijo , Korea; Dairen, Manchuria; and , Brazil. These contributions were eventually forwarded to the ambassador in Tokyo. Grew kept all money received related to the ''Panay'' incident in the embassy safe until the State Department could find a solution.
The American consulate in Nagasaki forwarded several contributions and translations of letters to the embassy in Tokyo, including fifty yen from a Mr. Ichiro Murakami, identified as a former U.S. Navy pensioner, and another individual who wished to remain anonymous.
In a letter two days later, the consulate in Nagasaki also reported to Grew that on December 21 a small boy from the Shin Kozen Primary School brought in a letter and donation of two yen to the consulate and was accompanied by his older brother. The consul enclosed the contribution and both the original and translation of the boy's letter. The letter reads, "The cold has come. Having heard from my elder brother that the American warship has sunk the other day I feel very sorry. Having been committed without intention beyond doubt, I apologize on behalf of the soldiers. Please forgive. Here is the money I saved. Please hand it to the American sailors injured." The letter, addressed "To the American sailors," was signed only, "One of the pupils of the Shin Kozen." The boy did not provide his name in the letter, nor did he reveal it when visiting the consulate.
A local newspaper, the '''', published the story of Mr. Murakami's donation and that of the schoolboy and included an excerpt of the boy's letter. Arthur F. Tower, the American consul in Nagasaki, informed Ambassador Grew of the article, which had been published on January 7. Tower also informed Grew that a reporter of another newspaper, the Tokyo and Osaka Asahi Shimbun had called on him on December 23 to discuss the Panay contributions. Towers reassured Grew that "this consulate has not sought to give publicity to the donations received or offered and has furnished information concerning them on two occasions only, when requested."
Although the consul in Nagasaki was not trying to publicize the donations, the newspaper stories may have increased contributions at his consulate. On January 8 a Japanese pensioner of the U.S. Navy called in person to make a contribution of five yen for the relief of those involved in the ''Panay'' incident. When his contribution was accepted, the former sailor informed the consul that a group of other U.S. pensioners also wished to donate money. On January 10 he visited the consulate again, this time with two representatives of Japanese pensioners of the U.S. Navy who lived in the area. By this time, however, the Nagasaki consulate had received the consulate general's supervisory circular informing them that all ''Panay''-related contributions were to be made either to the ambassador in China or the ambassador in Japan. The gentlemen attempted to donate money but were informed that the consul could no longer receive contributions, and the men were asked to communicate directly with the American embassy in Tokyo. Soon after the departure of the former U.S. sailors, two Japanese men arrived at the consulate. These gentlemen, representing the Buddhist Association of Nagasaki, also had come to donate money for victims of the ''Panay'' and were likewise turned away.
Responsibility for the attack
Modern historians have gone back and analyzed the attack. Many now believe that the attack may have been intentional. According to John Prados, Navy cryptographers had intercepted and decrypted traffic relating to the attacking planes which clearly indicated that they were under orders during the attack, and that it had not been a mistake of any kind. Writer Nick Sparks believes that the chaos in Nanking created an opportunity for renegade factions within the Japanese army who wanted to force the United States into an active conflict so that the Japanese could once and for all drive the United States out of China. Considering the attack on Pearl Harbor 4 years later, it is not unlikely that the same hard-line factions in control in 1941 were wishing to provoke a war as early as 1937.
The episode has been cited by Philip K. Dick in his novel ''The Man in the High Castle'', depicted in a collectible picture-card of the 40's, in the series ''Horrors of War'' with the title "The sinking of the Panay". The incident also features in the novel by the British writer Douglas Galbraith. It is also described in the historical fiction novel ''Pearl Harbor'' by Newt Gingrich and William R. Forstchen.