Yamamoto faced some opposition in the Japanese government, in that the favored political strategy was to focus on an impenetrable naval defense perimeter in the Pacific. As a result of these two different strategies, it was decided to do BOTH: Japan would go for Australia and Midway at about the same time, which would stretch the Japanese military capacity to the limit. On 4 May, 1942, the Battle of the Coral Sea occurred, northeast of Australia; the two opposing forces were separated by 175 miles of open ocean. Ships never came into contact; it was an air battle with carrier-based planes. Japan sank the U.S. aircraft carrier Lexington (pictured), and badly destroyed the carrier Yorktown's flight deck. The U.S. sank a Japanese light carrier, one of their large aircraft carriers, and Japan lost twice the number of planes compared to the U.S. As a result, Japan cancelled their planned invasion of Australia.
Yamamoto's strategy was as follows: Nagumo would lead the attack, the U.S. would respond and engage in battle, and then he would quickly advance for the kill, and the decisive victory. However, this time the U.S. knew Japan's plan of attack, having broken their communications code some weeks prior, and the U.S. plan was to destroy all of Nagumo's carriers. As the battle raged over Midway Island, the U.S. sank three Japanese carriers, and the fourth was so badly damaged that it was scuttled (Japan only had two large carriers left in their navy at that time); that meant that the Japanese planes and pilots that had savaged Midway had no place to land on their return.
Yamamoto had no choice but to retreat in disgrace with a badly damaged navy; in just six months after Pearl Harbor, as a result of Midway, Japan lost their naval superiority in the Pacific. In the two years after Midway, Japan had six battlefleet (large) carriers (all would be badly damaged or destroyed before the end of 1944), while the U.S. had 17 battlefleet carriers (but not the Yorktown; that carrier was sunk by a Japanese submarine as it was being towed to Pearl Harbor after Midway), as well as 10 medium carriers, and 86 escort carriers.