I thoroughly confused myself (spoilers)
Finally got around to watching this movie since it was mentioned in Crimson Tide.
They spent so much time puzzling over the morse code that I could only think there must be a spy INSIDE the American sub who was sending information to the Japanese on where they were (e.g. so the planes could find them). I guess an experienced captain and XO take a while to realise that undecipherable messages must be enemy transmissions :p Yes I realise that would not explain why 4 other subs were lost in the same area.