Controlled by Japan since 1895 and claimed by China on the basis of a longer historical association, the Diaoyu/Senkaku islands lie amid rich fishing waters in an area with large reserves of undersea oil and gas. But the violent protests precipitated by the Japanese government’s purchase of three of the islands last September do not necessarily reflect Japan and China’s immediate struggle over these resources.

Chinese protestors attacked Japanese businesses in retaliation for what state-run media portrayed as Japan’s ‘bullying’ behaviour, consistent with a nation that had not sincerely repented its wartime past. Japanese hostility, on the other hand, rests on old prejudices that are being channelled, these days, into complaints against Chinese ‘ingratitude’ for the aid and investment the latter has historically received from Japan. A recent survey conducted for the Asahi Shimbun recorded overwhelmingly negative perceptions of the bilateral relationship in both countries. The biggest problem cited by respondents was different ‘perceptions of history’.

Tokyo views Beijing’s willingness to carry the dispute into international forums as confirming a larger strategic purpose (for example, a Chinese general attending a conference in Melbourne chose to remind delegates of the once ‘fascist’ state that bombed Darwin). China is acquiring the military hardware necessary to prevent an outside force from projecting power into the East and South China Seas — the much-discussed Anti-Access and Area Denial capability against which the Pentagon has framed its ‘Air-Sea Battle’ plan. Some observers would apparently concede this ‘strategic space’ to China, as a great power. But, according to a senior Japanese defence analyst interviewed by the author: ‘the ‘power sharing’ argument [referring to Professor Hugh White’s book The China Choice: Why America Should Share Power] emboldens China; it signals a right of way for it to expand its activities and display its strength. The thesis may have relevance some time in the future, but at present China does not possess the means for constructive projection of power. To encourage the notion that a vacuum exists into which it may expand prematurely is risky.’

China’s increasing use of its maritime law enforcement agencies for so-called rights-defence activities is seen as part of a more assertive posture. Its stated policy is to strengthen the capabilities of these agencies and have them work in closer cooperation with the People’s Liberation Army Navy. A Japanese Defence Ministry official, speaking on condition of anonymity, said it had become necessary to factor in these assets when calculating the country’s own future defence requirements. Most of the vessels, on both sides, are armed. Under its 2010 defence plan, Japan has begun drawing down military assets from Hokkaido, in the north, and boosting them in the country’s south, most notably by enlarging its submarine fleet. The decision to bring forward spending on additional new coast guard vessels by six months is a direct consequence of the current imbroglio with China.

Lately, Chinese fishing vessels have been operating away from the conflict zone and protest ships have not reappeared. Japan’s previous failure to stop activists getting ashore on the disputed islands is considered within government circles to have been a tactical blunder and tougher measures can be expected against any future attempts. While coast guard and fisheries surveillance vessels continue shadowing each other, the risk of an accident or miscalculation remains, but their presence may also deter rogue protest actions and permit the two countries’ naval forces to keep out of each other’s way.

Japan is keen to demonstrate to China that bad relations with it harm China’s core interests, including its ambition for greater influence within regional groupings. Tokyo’s possible commitment to the US-led Trans-Pacific Partnership, which China regards as a possible threat to East Asian economic integration, is figuring as an issue in the lead-up to Japan’s national election. Moves by Japanese firms to diversify their production bases in Asia and to exploit business opportunities in new markets, such as Myanmar, are also underway and are being portrayed in a similar light.

The Japanese government miscalculated when it thought it could more easily rebuild relations once the new Chinese leadership took control. Fence-mending talks have progressed to ministerial level but have stalled there. Slowing Chinese economic growth and a return to recession in Japan form a disturbing backdrop to these events. Both sides have much to lose from what novelist Haruki Murakami has called getting drunk on ‘the cheap liquor’ of nationalism. The recent announcement of a start next year to much-delayed talks between China, Japan and South Korea for a possible trilateral FTA indicates that economic imperatives may be having a sobering effect.

Walter Hamilton spent 11 years reporting from Japan for the Australian Broadcasting Corporation. He was in Tokyo in September and October during the latest outbreak of Sino–Japanese hostility.

A longer version of this essay was presented at the Australian Institute of International Affairs in Canberra on 15 November 2012.