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The Emperor was said to have had his naval ministers on the carpet, rubbing their noses deep in the pile. The Japanese government insisted that since the outbreak of hostilities in China in July, it had faithfully tried to prevent what had just happened. During that time, the government said, a number of fliers had been punished and some sent back to Japan in disgrace for “reckless flying.” More immediately to the point, the government announced that Rear Admiral Keizo Mutsunami, commander of the Japanese Naval Air Force in China, had been dismissed and ordered to return to Japan immediately. Mutsunami had seemed sure of a bright future: he had once been skipper of the big carrier Kaga, which was to take part four years later in the Pearl Harbor attack, and only recently had been made a rear admiral. Virtually his whole career had been with the naval air forces. Now it was presumably over.

By Friday, December 17, the day the survivors reached Shanghai, many U.S. papers reported for the first time the final ignominious machine-gunning of the Panay by Japanese army craft before she sank. The story did not appear in Japanese papers; the Foreign Office in Tokyo immediately reported to Washington that the reply to the earlier American protest would have to be delayed still further while it looked into this new charge. Meantime, despite Japanese investigations and apologies, American indignation was growing.

The machine-gunning of the ship and Hashimoto’s role in the incident were now receiving more attention in the American press than the bombing itself. The Japanese papers still carried no mention of the attack by the army launches. But to Americans, the machine-gun outrage seemed to indicate clearly that the whole incident had been carefully planned from beginning to end by the anti-Western faction in the Japanese Army in order to humiliate the United States.

It was Christmas Eve in Washington—a “masterful” piece of timing, Ambassador Grew called it—when the official Japanese answer finally came. With it came a strange feeling of anticlimax—and relief. The reply was a complete apology. All the particulars of the U.S. note had been met. The Japanese still maintained that the bombing was a colossal mistake, although an understandable one. While the Panay’s plan of movement had been properly filed with military authorities, erratic field communications between Japanese units had held up a proper passing of the word. The commander of the air squadron that sank the gunboat had not been notified of the Panay’s presence in that part of the river until 5:30 P.M.—an hour and a half after she had gone to the bottom. And in spite of the American photographs, which showed that the visibility had been fine, the Japanese claimed that “dense smoke” had so obscured the area that Japanese troops had also been bombed. At the time the Japanese had said that only fifteen planes had been involved in five attacks over about twenty minutes’ time; later admissions raised the attacking force to twenty-four. The pilots stoutly denied that American flags had been seen at any time, even though they said they had dived as low as 900 feet to try to identify the vessels. The Japanese also reported that those responsible had been punished, but Colonel Hashimoto was not named or alluded to.

On April 22, 1938, the Panay incident was officially marked closed when the Japanese government presented the United States with a check for $2,214,007.36. It was tendered as “settlement in full” for destroying three large Standard Oil craft, for the loss of the Panay, for the deaths of one civilian captain and two Navy men, and for injuries suffered by seventy-four men on all the vessels.