The two Asian neighbors divided by a strip of water but united for thousands of years by history and culture are now criticizing each other about military buildups and “unprecedented … strategic challenges.”

That tense discussion is underlied by contested maritime borders and overlapping territorial claims in East and South China Seas – all of them flammable issues and flagrant casus belli among countries whose deep wounds of the last world war have never healed.

And yet, China and Japan are showing some of the fastest growing bilateral trade flows in the world. During the first five months of this year, those trade transactions came in at $146.7 billion, marking an impressive 17.2 percent increase from the year earlier.

China remains Japan’s by far the largest foreign trade partner. Last year, Japan’s trade with China was 52 percent greater than the trade business with the U.S. – Tokyo’s closest friend and treaty ally.

That vibrant Sino-Japanese trade business is of enormous importance for a weak and structurally unbalanced Japanese economy. Its growth this year is estimated at 0.6 percent, roughly halved from last year’s increase.

Focus on the economy …

Traditionally, trade with China has been crucially important for Japan. The former prime minister Shinzo Abe confirmed that during his first press conference upon his election for a second term of office in December 2012. He said 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.”

Not some but a lot of wisdom is necessary to restore peaceful and productive relations with Japan’s largest export market.

A 28 percent increase in Japanese sales to China in the first five months of this year is a strong contribution to Japan’s economic growth at a time when an unreasonably high wage growth of 5.5 percent reflects shrinking labor supplies, accelerating inflation, downward pressures on corporate profits and dim prospects for business investments.

Japan’s domestic demand cannot be the principal growth driver it has been for the last year and a half. A weak labor force growth of 0.3 percent and an even weaker labor productivity growth of 0.2 percent reflect deep structural flaws that cannot support wage hikes of 5.5 percent to feed household consumption and business investments.

A very weak yen and steady and sustained domestic demand growth in China and in eleven Southeast Asian economies (ASEAN) are an opportunity to promote Japan’s main exports: vehicles, machine tools, electrical and electronic equipment.

But to stay competitive, and to step up its net exports, Japan should focus on investing in labor saving technologies to raise productivity and reduce the growth of unaffordable unit labor costs of 5.3 percent (5.5 percent wage increases minus 0.2 percent productivity growth) to support business investments and prevent massive offshoring.

And love thy neighbor

Reviving Japan’s traditional export-led growth is a must. That would also facilitate Japan’s long overdue fiscal consolidation. Subsidizing energy costs to keep household spending and business investments afloat is a desperate policy measure for a country running a huge public debt of 198 percent of GDP. Yes, the current budget deficit of about 2 percent of GDP is low, but Japan’s rising public debt service costs are expected to take one-third of its total government spending.

Neglecting deeply ingrained structural weaknesses of Japanese economy would be a serious error.

And as things stand now, those weaknesses are also showing up in Japan’s foreign trade. A $19 billion trade deficit last year is a clear sign that Japan is losing ground in all major world markets.

Apart from its deficit of $52.7 billion with China, Japan last year also had a $13 billion deficit with ASEAN, and $18 billion deficit with the European Union.

Those numbers suggest that what Japan has to offer is not selling well in some of its best export markets. And that is happening despite the yen’s trade-weighted decline of 62 percent over the last five years.

Japan has plenty to do on its home front. Tokyo, therefore, would be well advised to follow the U.S. policy of strategic stability with China.

Picking unnecessary fights with Beijing and riling up Japan’s public opinion with “security challenges” -- in spite of 55,000 of U.S. soldiers and 15 American military bases on Japan’s archipelago -- is an incredible deviation from urgent tasks of salvaging a deeply troubled economy.