TOKYO - Japanese Prime Minister Yoshihiko Noda has called for talks to contain economic damage from a bitter territorial row with China that is already hurting Japanese businesses, as its largest trading partner downgraded its delegation to an annual gathering of top finance chiefs in Tokyo.
"These are the second and third largest economies in the world, and our interdependence is deepening," Mr Noda, 55, said in an interview with Bloomberg.
"If our ties cool, particularly economic ones, then it isn't a question of one or the other country suffering. Both countries lose out," he said on Wednesday.
Yesterday, International Monetary Fund (IMF) head Christine Lagarde said China would lose out by not sending Finance Minister Xie Xuren and central bank chief Zhou Xiaochuan, seen as a snub to Japan as host of the IMF and World Bank meetings this week.
She urged both sides to settle their row quickly, adding: "Countries in this region are very important for the global economy."
For Japan, the spat over the Senkaku islands, which China refers to as Diaoyu, caused Toyota and Nissan to suffer their biggest one-month drop in Chinese car sales last month since at least 2008. JPMorgan Chase sees a 0.8 percentage-point hit to Japan's gross domestic product from the dispute this quarter.
"We need talks through various channels to make sure there is no effect on the broader relationship," Mr Noda said.
"There has been an effect on individual industries. The overall effect will depend on the talks we have going forward and the efforts we make."
Japanese stocks have fallen 3.6 per cent since Sept 10, when Tokyo announced it would nationalise the islands in the East China Sea. The dispute added to economic strains from Europe's crisis and a fading in reconstruction spending from last year's earthquake and tsunami disaster.
China will not be unscathed. At stake are ties with its second-largest provider of foreign direct investment. Japanese companies poured in US$5.1 billion (S$6.25 billion) in the first eight months of this year, second only to Hong Kong, according to the Chinese Ministry of Commerce.
Asked about Mr Noda's comments, a Chinese Foreign Ministry official said yesterday that Japan was "fully responsible" for causing "an unprecedented grave situation" in ties.
Separately, Foreign Minister Yang Jiechi said, without elaborating, that China's decision to downgrade its delegation to Tokyo was "completely appropriate".
BLOOMBERG, AGENCE FRANCE-PRESSE