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Fine steel wool and oil is all you should need for the metal. It doesn't look that bad. It shouldn't affect the finish at all and will get the surface rust off.
Japanese rifles do not have BLO, they used a finish type native to Japan, should be some good posts on here about them. Hard to duplicate and as the plants used have similar properties to poison ivy, they can be a skin irritant as well.
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Be careful with the Murphy's it the (I believe its Usuri?)ifinish may not like it too strong.
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Urushi
The wood finish used on properly made (prewar, not last-ditch!) Japanese rifles was Urushi lacquer. This is the original "Japanese lacquer" - before Europeans starting applying the name to all sorts of chemical varnish products. It is considerably more chemically resistant and tougher than shellac, seals better than linseed oil, and if I could get some I would use it to replace the knackered shellac on "Ivan the Terrible" (there's another cutesy nickname for those who like that sort of thing:D).
Just go here:
http://www.nihonart.de/pdf/Urushi_Flyer_Studenten.pdf
and you will begin to realize that proper urushi lacquering requires a bit more than just sloshing it on with a paintbrush. - Which was how it was done on "Ivan the Terrible".
So, a warning to Bubba and his friends and followers - stripping off an urushi finish because it is scratched is worse than stripping off a blued surface from an old gun just because it is worn in a few places. Worse because, whereas rebluing metal is a fairly straightforward engineering surface-finishing technique, producing an urishi lacquer finish from a blank surface requires craftsmanship. I can't do it, but I would be delighted to hear if anyone on the forum can!
:wave:
Patrick