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Japanese exports have not benefited from the recent strengthening of the Chinese economy – an early sign that the diplomatic standoff between the two countries is dealing a blow to Japan's economy.

In year-over-year terms the Chinese economy has shown marked improvement in recent months with industrial production rising almost 70 per cent in year-over-year terms in September. But although China and Japan remain major trading partners – an average of $12-billion (U.S.) in goods moves from Japan to China each month – Japanese exports have not increased along with Chinese manufacturing activity.

Increasing tensions between the two countries over a cluster of islands claimed by both have already hurt sales of Japanese cars in China: Mainland sales of Toyota vehicles fell almost 50 per cent in September. New data suggest that this trend has spread from such visibly Japanese consumer products to the industrial areas that make up the vast majority of trade between the two countries.

Electrical equipment, including components for communications devices, makes up the largest share of Japan's exports to China at 26 per cent of the total. The chart at left shows that the strong year-over-year improvement in Chinese manufacturing has left Japan's export growth well behind. At the same time, China's total imports of electrical equipment from all countries climbed by 22 per cent in September.

Political tensions between Japan and China are clearly having an adverse effect on Japanese exporters. Trade data suggest that the goods that Chinese companies used to buy from Japan are now being imported from elsewhere. With recent GDP data confirming that Japan is on the brink of yet another recession, the dispute could not come at a worse time for the country's economy.