As tension between Japan and China escalates over the ownership of the Senkaku Islands following the Japanese government’s decision to purchase three of the five islets in the island group, there is the possibility that China will step up its confrontational attitude toward Japan.

This could cause difficulty on both political and economic fronts. Japan needs to carefully monitor Beijing’s moves, ascertain the meaning behind those moves, and quickly take necessary steps to change the situation for the better.

It is important for Japan to take concrete action to resume constructive dialogue with China and thus it needs to mobilize all available means to that end. Neither repeating hawkish rhetoric toward its Asian neighbor nor taking a do-nothing attitude with unwarranted optimism will help end this difficult situation.

Symbolic of China’s hard stance toward Japan is its decision to cancel celebrations scheduled to be held in Beijing marking the 40th anniversary of the normalization of diplomatic relations between Tokyo and Beijing. In view of the tense situation, the Japan-China Economic Association this week decided to postpone sending a delegation to China. The Japan-China Green Expo, which was to have begun last week in Shanghai, was also canceled.

China has tightened customs inspections of Japanese goods and slowed down the processing of visa applications by Japanese citizens. Chinese citizens are cancelling trips to Japan impacting the Japanese tourist industry such as hotels and inns. Grass-roots exchange events between Japan and China are also being canceled one after another.

In China, Chinese workers at Japanese firms have started calling for pay raises, taking advantage of the dispute over the Senkaku Islands.

These developments are unprecedented in recent history. When China was isolated by the international community because of the 1989 Tiananmen Square incident, Japan was the first nation to resume economic relations with China.

Even when then Prime Minister Junichiro Koizumi enraged China by repeating his visits to the Yasukuni Shrine, which enshrines Japan’s war dead, economic relations between Japan and China continued.

Since China is Japan’s largest trading partner, Japan is likely suffer from the recent developments. Japan must assume that the current situation will likely not be a one-off and that a similar situation may be repeated in the future. Japan needs to take its economic security more seriously; Specifically, it should diversify routes for procuring food, energy and other resources.

Japan should use this opportunity to fully develop green energy sources inside the country. In view of economic security and the need to maintain food self-sufficiency, it should rethink its attempt to join the Transpacific Partnership free-trade zone. Company executives will also need to carefully evaluate the risks when investing in China or starting businesses there.

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