The situation in China provided an easy opportunity for Japan to further its goals. Japan saw Manchuria as a limitless supply of raw materials, a market for her manufactured goods (now excluded from many Western countries by Depression era tariffs), and as a protective buffer state against the Soviet Union in Siberia. Japan invaded Manchuria outright after the Mukden Incident (?????) in September 1931. After five months of fighting, the puppet state of Manchukuo was established in 1932, with the last emperor of China, Puyi, installed as a Japanese puppet. Militarily too weak to directly challenge Japan, China appealed to the League of Nations for help. The League's investigation was published as the Lytton Report, condemning Japan for its incursion into Manchuria, and causing Japan to withdraw from the League of Nations entirely. Appeasement being the predominant policy of the day, no country was willing to take action against Japan beyond tepid censure.

Incessant fighting followed the Mukden Incident. In 1932, Chinese and Japanese troops fought a short war in the January 28 Incident. This battle resulted in the demilitarization of Shanghai, which forbade the Chinese from deploying troops in their own city. In Manchukuo there was an ongoing campaign to defeat the anti-Japanese volunteer armies that arose from widespread outrage over the policy of nonresistance to Japan.