Analysts warned on Tuesday that neither side in the Japan-China territorial row can afford a breakdown in economic ties
An estimated 260 billion euros worth of trade is at stake in the squabble over a group of islands in the East China Sea: two hundred and sixty billion euros worth of bilateral trade.
China is Japan’s biggest export market and investors hope the crisis will be short-lived.
Frances Cheung, senior strategist at Credit Agricole CIB, said the stock market reaction in Tokyo is “a blip.”
“But in terms of imports/exports trade it could have a bigger impact,” she said.
Attacks on Japanese business have forced those firms to suspend their operations in China, where they have established manufacturing bases to take advantage of lower labour costs.
Carmakers Toyota and Honda, as well as fashion retailer Uniqlo are among those affected.
Peter So, head of research at CCB International, said this is the wrong move to make in the world’s fasting-growing consumer market.
“It would be good for Japan to continue to establish factories operations in China to sustain the demand potential which is beneficial to Japan,” So said.
“I think in the medium to long term I think Japan will try to take every opportunity to expand the market in china again.”
Tensions mounted earlier on Tuesday when China sent 11 warships to the area around what it refers to as the Diayou Islands.
The island chain is known as Senkaku in Japan, which has also dispatched its coastguard to patrol those same waters.
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