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Midway Island was a crucial strategic place in the Eastern Pacific region - it had a very good anchorage for ships, and a well-developed airfield (though only marginal repair/refueling facilities). Capture of Midway Island by the Japanese would allow them to base strong forces there which could potentially attack the Hawaiian Islands. That is, by owning Midway, the Japanese would be able to effectively attack and harrass supply shipments from the mainland U.S.A. to the Hawaiian Islands. This in turn would force the Americans to fight for the Hawaiian Islands, rather than have them as a "safe" base.

Think of the attack on Midway as a "island-hopping" strategy for the Japanese: attack and hold Midway means it's much easier to attack (then hold) Hawaii, which makes it easy to attack the U.S. West Coast...

Yamamato was well aware that the Americans understood this concept and the strategic value of Midway, and thus aware that they would be forced to make a strong defensive response to any major Japanese attack on them. Essentially, attacking Midway put the Americans in a "back-against-the-wall" situation, where they would be forced to fight; if the Americns did not fight for Midway, then they would be in an even worse strategic position for the next fight (which would be for the Hawaiian Islands themselves).

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