The Japanese did have gains in the Treaty of Portsmouth that ended the war. The Treaty secured the transfer of Russia's southern Manchurian railway concessions to Japan as well as a transference of the lease of Port Arthur and the Kwantung region from Russian control to Japan. Japanese negotiators were also able to gain control over the southern half of Sakhalin Island and have global recognition of its rights in Korea, paving the way for the subsequent annexation of the peninsula. All of these gains would shape the trajectory and course of Japanese imperialism on the continent for the next forty years and beyond.

Nonetheless, the Treaty of Portsmouth was unpopular among the wider Japanese public and there was a sense among the Japanese negotiators that they had been cheated of their gains. The main sticking point for the peace was that the Japanese expected Russia to pay a large indemnity for losing the war. The earlier Sino-Japanese War had set a precedent for this as Tokyo managed to extort a sizable sum from the defeated Chinese. The Russo-Japanese War, which was much more protracted and hard-fought than the earlier conflict raised public expectations of a rich reward. The Japanese government only barely managed to find financing the war through Anglo-American loans also appreciated the need for an indemnity. Gains in Korea and northwest China were much more abstract than a massive payment that would ease the tax burden and eliminate the deficit spending the war engendered.

The main obstacle for the indemnity was not Theodore Roosevelt or the American intermediaries, but the Russians. Emperor Nicholas II had instructed his chief negotiator Sergei Witte not to cede an inch of ground over an indemnity. This was not only in keeping with Russian tradition not to pay such indemnities- not even Napoleon could wrangle this type of concession from Alexander I at Tilsit- but also reflected the fact that as dramatic as the defeats of Port Arthur and Tsushima were, they were at the other side of the world as far as St. Petersburg was concerned. The Romanov state would not part with desperately needed treasure when it was experiencing its own revolution in the European parts of its empire. Witte could authorize the transference of territory and concessions, but not money.

This all put Roosevelt in a tight spot as a negotiator and he gradually came to the conclusion that Russia would not part with a single Kopek as part of the peace treaty. TR did float some schemes for Japan to gain a proxy indemnity, such as having Russia cede southern Sakhalin but pay Japan for keeping the northern half under Russian control. None of these schemes worked and Roosevelt confessed to his son Kermit in an 25 August 1905 letter:

I am having my hair turned gray by dealing with the Russian and Japanese peace negotiators. The Japanese ask too much, but the Russians are ten times worse than the Japs because they are so stupid and won’t tell the truth.

Roosevelt's candor reveals the thorny situation he was in as the chief intermediary between the two parties. He may have held dismissive attitudes towards both parties in private, but he also recognized that neither side could meet their minimum requirements for an honorable peace. The Russians were loath to surrender Sakhalin and accept limitations on Russian power on the Far East. One of the fundamental problems for Japan was that despite having effectively won the war, it had no real levers against Russia it could employ. The exhausted Japanese field armies were in no shape to occupy Siberia and the Japanese-occupied Sakhalin was not a valuable enough territory that could be exchanged for the sums needed to make the war break even financially. Roosevelt recognized this salient fact and part of the task of him and his American negotiators was to bring the Japanese around to this reality.

Roosevelt was able to get the Japanese to see the writing on the wall over the indemnity and managed to have Witte cede the southern half of Sakhalin, both of which were initial non-starters for the respective parties. This in itself was no mean accomplishment by Roosevelt but it did him no favors in Japan. The Hibiya riots in Tokyo protested against the unfair terms of the Treaty and the lack of a concession. Although the Meiji government belatedly recognized that indemnities would never be forthcoming, the idea that Japan had been cheated out of its rewards in 1905 became one of the staples of Japanese right-wing and militarist propaganda. One ancillary of this invective was an assumption that the international order was rigged against Japan and any agreement with a Western power was inherently unfair. Protests against both the Washington and London Naval Treaties followed a familiar script as attacks on Portsmouth, even if the terms of these treaties were realistic and arguably the best Japan could have gained. But the lack of indemnity should not obscure the fact that Japan did gain considerable territorial concessions from the Russo-Japanese War. Japanese control over Korea and Liadong had a greater impact on the region's history than any lump sum of payments from St. Petersburg; modern industrial warfare had already shown by 1905 that making war pay for war was an impossibility given the escalating costs and sizes of armed forces, but that having political control over territory was much more durable than payments that would have disappeared into the black holes of a modern military budget.

Sources

Kowner, Rotem. The Impact of the Russo-Japanese War. London: Routledge, 2010.

Menning, Bruce W., John W. Steinberg, and David Schimmelpenninck van der Oye. The Russo-Japanese War in Global Perspective: World War Zero. Leiden: Brill, 2005.