Japan may be trying to wish away its dispute with China over the sovereignty of the Senkaku/Diaoyu islands by pretending the problem does not exist.

Unfortunately, the dispute is very real.

Unless Japan is ready to come to grips with reality, the territorial row will only fester, to the increasing detriment of not only political ties, but also economic and cultural relations between the two sides.

The Chinese have been dramatising the issue daily in the waters around the islands, by sending Chinese surveillance ships regularly into territory claimed by the Japanese, severely taxing the resources of the Japanese Coast Guard whose job it is to keep the Chinese vessels at bay.

The continuing stand-off has hurt Japanese companies that do business in China, and also dealt a severe blow to the tourism industry in both countries by sparking cancellations of tour packages and airline seats.

To further press their claim, the Chinese have also taken out full-page ads in the international press and attempted to redraw maritime boundaries in the area around the islands in the East China Sea.

Not surprisingly, impatience is mounting in Japan for the government to change tack.

The Mainichi Shimbun daily said in an editorial late last month: "Under such circumstances, it is not realistic for Japan to continue to assert that there is no territorial dispute between the two countries."

Mr Akihisa Nagashima, a lawmaker and security expert who is an adviser to Prime Minister Yoshihiko Noda, espoused a similar view on television recently.

The Japanese business community is also upset with the intransigence of the Noda administration.

Mr Hiromasa Yonekura, head of the powerful business lobby Nippon Keidanren, told reporters during a visit to Beijing last week: "Though China regards the (Senkaku) issue so seriously, Japan insists there is no problem, which is difficult to comprehend."

Four decades ago, when Japan entered into negotiations with China to discuss normalisation of bilateral ties, then Japanese Prime Minister Kakuei Tanaka acknowledged the Senkaku problem by raising it during the discussions.

So as not to jeopardise the normalisation talks, however, his Chinese counterpart at the time, Premier Zhou Enlai, reportedly said the issue should be taken up at a later time as "both sides have different positions and we will not come to any agreement".

During subsequent talks between China and Japan in 1978 on a peace treaty, then Chinese Vice-Premier Deng Xiaoping suggested shelving the issue for 20 to 30 years to be dealt with by a future generation endowed with greater wisdom.

As with most territorial disputes, both parties lean generously on historical evidence as proof of ownership.

A good part of the Chinese position on the issue seems to be based on a book written in 1972 by Japanese history professor Kiyoshi Inoue (1913- 2001).

Japanese academics, however, have pointed out that Prof Inoue, often described as a "Marxist historian", was not beyond leaving out facts from his book that did not support the Chinese claim.

The fact that he had also supported China's Cultural Revolution, was highly critical of the Japanese emperor system, and was awarded an honorary degree by the Chinese Academy of Social Sciences in 1997, did little to bolster his credibility among Japanese.

To publicise Japan's claim, the Japanese Foreign Ministry has carefully laid out its evidence for the international community to see, and Japanese diplomats have firmly, but politely, challenged experts who have poked holes in it.

Through all this, both Japanese and Chinese leaders cannot be unaware that both sides have much to lose by allowing the dispute to drag on or, even worse, to escalate.

China, which now boasts the world's second largest gross domestic product, is Japan's biggest trading partner, with annual bilateral trade amounting to some US$340 billion (S$418 billion).

Allowing the row to continue will not only exhaust both sides, but also destabilise the region.

To allow Japan and China to sit down once again at the negotiating table, and to agree that the dispute should be put back on the shelf, will no doubt require Tokyo to reverse its stance and to admit - even if tacitly - that it does exist.

While fencing with China during the past several weeks, Japan has offered the world a model lesson in diplomacy that should not pass unnoticed.

Compared to the shrill and belligerent rhetoric from Chinese officials, the Japanese response was always delivered in carefully measured tones, free of any histrionics.

Diplomatic decorum is something that the Chinese should also observe.