Straight Dope weights the evidence:
The belief that dogs could be trained to target ethnic groups led the U.S. Army Quartermaster Corps to establish an experimental “war dogs” program during World War II. Dogs underwent training at Cat Island, Mississippi, to sniff out Japanese soldiers and kill them. This charming procedure involved having a Japanese-American soldier in padded gear beat a dog bloody, whereupon the dog’s handler would order it to attack the soldier. The results weren’t impressive. After 90 days of such abuse, the dogs still couldn’t reliably distinguish ethnic Japanese.