Two very big issues with this entire scenario:
1. Greater Anglo-Japanese cooperation would mean that the navy radicals would never have adopted the anti-Western views of IJA, and thus Nanshin-ron is basically dead outside of crackpots who dreamed of Pacific delights. The amount of budget you've already given IJN for their ships is enough to satisfy any radical who might hae worried about IJA getting a lions share of the budget through the war in China. I mean really, you just butterflied away Japan's entire trajectory towards militarism with this sort of deep cooperation.
2. Okay, so Manchuria is far more developed, in line with the original plan of industrialization. You do realize that this means Japan could become virtually autarkic? Korea by itself had the biggest tungsten mine in history, and Korean coal was good enough to be used for coal liquidation on a larger scale. This isn't even going into the iron of Manchuria that was enough to satisfy all of Japan's increased needs if we have the development being on scheduled.
I mean sure, you can still have navy radicals pushing for Nanshin and Japan being such utter incompetents that they could not develop Manchurian independence to make it virtually independent outside of some part of their oil needs, but that's really gaming the situation for a predetermined result. I cannot really agree with this level of shallow butterflies, but then again I'm not a writer of this TL.
1. That cooperation is increasingly geopolitically strained. The Japanese government ITTL was well aware of Britain's deteriorating relationship with Germany in mid-1941 onward, as well as some of the back channel negotiation with the UASR, matters that Japan was not directly informed or consulted on. They, like any great power, had contingency plans for if an ally betrayed them, and in 1942 they decided that once America and Britain became co-belligerent against Germany, they were on the clock so to speak.
Japan is utterly reliant on oil from the Indies. British and French possessions sit astride this lifeline. So they struck first rather than for the two to draw closer together and slowly strangle Japan. It is the kind of decision making that typified imperial foreign policy IOTL, and like IOTL the centralization of power behind a fascist belief structure meant that they could never accurately assess the strength of their enemies. Belief in a vitalist 'national spirit', the cult of action, and the notion of the enemy as simultaneously immense but also frail and decadent assures this miscalculation.
The roots of Imperial Japan's fascism are quite deep in the structure of the state, the military, the bureaucracy and the zaibatsu. The violent relationship between subject nations and the imperial system certainly predates the 30s, as did Japanese racialist attitudes. And while some in the IJN might genuinely believe in deep cooperation with Great Britain, many others would treat the alliance as a pact among wolves to be discarded when it no longer suited Japan's interests.
2. And this is important. But as I mentioned, the major theme of Japanese decision-making in the 40s is securing what they've already achieved, and finding some way to finish subduing China. The problem is that these needs of the empire are often conflicting. The decision to go to war with the UASR was determined entirely because of the American's continued support financially, materielly, and even with volunteer units, of the Republic of China. This severed direct trade routes and hindered covert support of guerillas. Their undeclared border war with the Soviet Union later that year began over similar terms, and it was at least nominally successful under the terms of the new Soviet-Japanese Neutrality Treaty; it removed all American forces from east of the Urals, and blocked the overland supply of China through the Soviet Union.
And they are confronted with two conflicting treaty obligations. As members of the Anti-Comintern Axis, Germany and Italy had been pressuring Japan into entering the war since the very beginning, and important technical trade in patents, and quality machine tools was becoming threatened by it. On the other hand, Britain has been cooling their relationship with Japan since 1938 because it's not a good look for a democratically accountable government to be too closely associated with an army that's putting babies on bayonets.
The choice made sense at the time. France had switched sides, and the colonies that had resisted the coup were easy pickings, and the sun seemed to be setting on the British Empire, now tied to the hip with the Communists at war with Japan's ally.
I think it's important to note that sometimes people just completely miscalculate. As has been presented so far in the timeline, the UASR has pretty much bungled the war in the Pacific for over a year and a half, failing to do much but lose a fair number of ships during a period when they actually do need every ship available. Because until Midway, it's treated as a sideshow theater. The Japanese government underestimates its enemy's resolve, believing Britain will sue for peace after a good shellacking in both Europe and the Pacific. And that outcome was more likely than the British government let on to the populace, even though the odds were against it.
