There is no doubt that the row over a group of tiny islands in the East China Sea has sealed the deterioration in relations between China and Japan. The diplomatic spat over the Diaoyu/Senkaku islands, which sparked violent protests, with Japanese flags and factories burned, stunned Tokyo, and caused Japanese companies to consider scrapping investment plans in China. Why open a new factory, they ask, just for it to be firebombed or defaced while an acquiescent administration turns a blind eye?
Until recently the "one-plus-one" investment policy (for every factory built in Japan, companies also had to build one overseas) benefited China. But now insiders say firms will look to support growth in Indonesia, the Philippines or newly open Burma.
For the International Monetary Fund, which has taken its annual meeting to the Japanese capital for the first time since 1964, the dispute is one of many linked to slowing growth and a rise in protectionism.
This week's meeting was scheduled for Cairo, until the Arab spring made the region look too unstable for a gathering of finance ministers and global institutions. But with Chinese frigates circling the disputed islands and pleas for calm going unheeded, Tokyo's political situation is closer to Cairo's than the IMF expected. Read more...