The newly elected Japan’s Prime Minister Shinzo Abe told his first press conference in December 2012 that “China is an indispensable country for the Japanese economy to keep growing. We need to use some wisdom so that political problems will not develop and affect economic issues.”

Abe thought he could have a foot in both camps. But contested Sino-Japanese territorial claims, China’s increasingly important superpower status and Japan’s security treaty with the United States proved too much for Tokyo’s fence sitting diplomacy.

Predictably, Japan’s economy took a big hit, stagnating since 2012 at an average annual rate of 0.7%. And from $340 billion in bilateral trade with China at the time when Abe came to power, Japan’s business with its large neighbor went into a downturn, finishing last year at $292.6 billion – with Japan’s traditional surplus turning to a $43 billion deficit on China trades.

An even more remarkable indicator of weakening business ties are the waning flows of Japanese direct investments in China. From a recent high of $12.5 billion in 2021, those investments went onto a sharply declining path, ending up at $2.4 billion in the January-September interval of last year.

Japan’s alignment on U.S. policies

And that was not for the lack of trying. Delegations of Japanese business organizations, parliamentarians and elder statesmen continued to travel to Beijing to revive the fraying ties, burdened by a bitter legacy of China’s occupation by Japan from 1931 to 1945.

The situation also got worse as Japan joined concerns of the western alliance about China’s rapid economic growth, military clout and power projections on the global stage.

The most recent example of that was the last week’s visit to Washington by Japan’s Prime Minister Ishiba Shigeru to reaffirm Tokyo’s “unwavering commitment” to reinforce its military posture and to uphold the U.S.-Japan Treaty of Mutual Cooperation and Security. The U.S., for its part, pledged “unwavering commitment” to defend Japan, “using full range of capabilities, including nuclear capabilities.”

With specific references to China, the joint statement issued by U.S. and Japan opposed Beijing’s “unlawful maritime claims” and “provocative activities in the South China Sea.” They also opposed “unilateral changes by force or coercion” of Taiwan’s status quo and supported the island’s “participation in international organizations.”

And in a major win for Tokyo, the joint statement made clear that Article V of the U.S.-Japan Treaty of Mutual Cooperation and Security applies to Senkaku Islands. A signal to Beijing that U.S. would militarily defend these islands that China claims as its own and calls Diaoyu Dao.

The joint statement shows that Japan is completely aligned with U.S. policies toward China. Specifically, (a) refusal to accept China’s claimed maritime borders, (b) opposition to unilateral change of Taiwan’s status as a self-governed entity, and (c) Senkaku/Diaoyu Dao islands belong to Japan and are covered by U.S. military protection.

U.S. and China must find a peaceful modus vivendi

More generally, the joint statement implies Japan’s agreement with the U.S. intelligence estimate that China is a strategic and systemic competitor.

China has immediately reacted to the joint statement, pointing out that Taiwan is a province of China and an internal matter of the Chinese government. Diaoyu Dao islands are also part of China. Beijing has, therefore, invited Washington and Tokyo to respect its sovereignty and territorial integrity by adhering to the One-China principle.

In spite of all that, Japan wants to hold on to its China business because China is Japan’s largest trade partner accounting for one-fourth of its total foreign trade. And before going to Washington, Ishida is quoted by Japanese media that he wanted to go to China “as soon as possible” -- to make sure that bilateral ties with China “remain stable” for “mutual benefits.”

Benefits, indeed. The Japanese Chamber of Commerce and Industry in China reported last week survey results showing that 58% of 8000 Japanese companies operating in China were planning to increase their investments in response to an upbeat sales outlook.

Japanese politicians also stepped in to protect business ties with China. Leaders of Japan’s ruling parties (Liberal Democratic Party and Komeito Party) led a delegation to Beijing last month for the “Ninth meeting of China-Japan ruling parties exchange mechanism.” One wonders whether they discussed Japan’s 2024 defense white paper where the “China threat” is qualified as "the most severe and complex security environment since the end of World War II."

How will all that play out in the months and years ahead crucially depends on U.S.-China ties.

One thing is clear, though: China’s response to the joint U.S.-Japan statement indicates that the key questions remain open. And all those open questions are China’s red lines. Washington is now busy putting out the fires in Europe and in Middle East, but the U.S. and China must soon find a peaceful modus vivendi. Anything else makes no sense.