Like 10justname01 mentioned, the oppai (boobs) part is true but the morse code meant nothing. He was just staring at them for too long and started making things up.
The Gestalt collapse: A psychological and perceptual phenomenon where staring at a complex character, word, face, or object for an extended period causes it to temporarily lose its meaning and break down into a collection of unrelated lines, shapes, or sounds.
No need to be so tense, author also made shit up.
The letter O in morse whould be _ _ _(three long tap).
But the nipples were . _ .
Basically the joke is he made up a morse code and is bugged with himself. What he saw
Bboos
Bobos
Then he arranged into proper
Boobs
Too many big boobs where my flat chests are
I tried to Google Japanese Morse code and this came up
https://en.wikipedia.org/wiki/Wabun_code
I tried to decode it, and they matched up except it's missing the small っ. Not sure if there's a rule about っ, or there's really no meaning other than gestalt collapse.
Anyway, I would translate the joke like this
おっぱ
Boo
おっぱひ
Boops
Then, he rearranged the girls into
おっぱい
Boobs
So... what was the actual morse code gag? I can read the morse code as well as I can read the giant untranslated japanese letters... that's to say; not at all.
The point is he saw "boo" expecting the soldiers' nipples to say "boobs".
But the code ended up being "boops", so he rearranged the girls so their nipples say "boobs".
Edit for additional details: I'm assuming his comment about old kana means おっぱひ used to be the correct spelling, so the JP joke is even more close than my choice to use "boops".