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Dispute With China Hits Japan's Economy Hard

A territorial dispute with China is hitting Japan’s economy hard
Overturned Japanese cars after a protest in China on Aug. 19
Overturned Japanese cars after a protest in China on Aug. 19Photograph by Vincent Yu/AP Photo

In early September, Yoshihiko Noda passed the one-year mark as Japanese prime minister. That’s no small accomplishment—the country is on its sixth premier since 2006. Noda has seen his approval rating drop to 34 percent after doubling a sales tax to 10 percent, however, and he has reshuffled his Cabinet three times. If he’s going to make it another year, he’ll need to defuse a tricky foreign policy crisis: Japan and China’s quarrel over ownership of a group of uninhabited islands in a potentially energy-rich section of the East China Sea.

The Japanese government’s decision last month to nationalize part of the islands (called the Senkaku in Japanese and the Diaoyu in Chinese) triggered protests in dozens of Chinese cities. It is also hurting Japan’s economy. In September, Toyota and Nissan suffered their biggest monthly drop in Chinese car sales since the financial crisis in late 2008. JPMorgan Chase is predicting a 0.8 percentage-point hit to Japan’s gross domestic product from the China dispute in the fourth quarter. The International Monetary Fund, which held its annual meeting in Tokyo from Oct. 12 to 14, said the tension may crimp growth worldwide.