China-Japan ties face a sharp downturn amid the Taiwan dispute and economic fallout

Relations between China and Japan have entered one of their most turbulent phases in recent years, as diplomatic clashes over Taiwan have spilled into the United Nations, triggered economic repercussions, and reignited historical grievances.

Rising Diplomatic Tensions

The crisis was sparked in early November when Japanese Prime Minister Sanae Takaichi stated in parliament that a Chinese military action against Taiwan could constitute a “survival-threatening situation” for Japan, potentially justifying military involvement alongside allies. Beijing condemned the remarks as a violation of the One-China principle, accusing Tokyo of undermining the post-war international order.

China’s ambassador to the UN, Fu Cong, has since delivered multiple letters to Secretary-General Antonio Guterres, calling Takaichi’s comments the “greatest challenge” to bilateral ties and demanding their retraction. Japan’s UN envoy, Kazuyuki Yamazaki, countered that Tokyo’s position remains consistent with its post-World War II defense posture, but avoided directly reaffirming China’s sovereignty over Taiwan.

Historical Context and Accusations

Chinese officials have repeatedly urged Japan to “face history” and honor commitments made in documents such as the Cairo Declaration and Potsdam Proclamation, which affirmed Taiwan’s return to China after World War II. Beijing accuses Tokyo of “fudging its position” and selectively citing treaties that exclude China, warning that Japan’s growing defense budget and debates over nuclear policy risk reviving militarism.

Economic Fallout

The diplomatic chill has already spilled into markets. Following Beijing’s travel advisory warning Chinese citizens against visiting Japan, tourism and retail stocks plunged. Companies such as Shiseido and Isetan Mitsukoshi saw double-digit declines, while the Nikkei 225 index dropped 3% in two sessions. With Chinese visitors accounting for nearly 27% of Japan’s inbound tourism last year, analysts warn that prolonged tensions could severely impact Japan’s fragile economy.

Military and Regional Implications

Beyond rhetoric, both sides have taken concrete steps. China’s coast guard increased patrols near the disputed Senkaku/Diaoyu Islands, while Japan announced plans to deploy missiles on Yonaguni Island, just 110 kilometers from Taiwan. The escalation underscores how Taiwan’s fate has become a strategic flashpoint not only for Beijing and Taipei but also for Tokyo’s security calculus.

Outlook

The deterioration marks a dramatic reversal from cautious optimism earlier in 2025, when leaders met at the APEC summit in South Korea. Analysts now warn that the dispute risks freezing bilateral engagement for the foreseeable future.

Unless both governments step back from hardline positions, the cracks in China-Japan relations could widen into a prolonged diplomatic rift—one with consequences stretching from the UN chambers to Asian markets and regional security.