Political analysts say that military conflict between Asia's heavyweights is unlikely since it's in neither party's interest. Furthermore, Japan is allied to the U.S., which China does not want to antagonize.
Still, they add that the situation in Asia remains a dangerous one: A belligerent China is looking to assert its position in the South China and East China Seas, alarming neighbors as well as the U.S., the world's remaining superpower.
"Bluntly put, Beijing's long-term strategic intentions inspire deep anxieties," think tank Carnegie Endowment for International Peace said in a report this month.
Analysts say the Japan-China relationship is one of the most important bilateral tie-ups in the world in terms of its impact on economic and regional stability. And with bilateral trade between the two Asian powers estimated at some $300 billion, any deterioration in relations is likely to have significant repercussions for Asia's economy.
For instance, Japanese shipments to China tumbled 14.1 percent in September 2012 from a year earlier, the biggest decline since January that year. That was the last time there was an escalation in Japan-China tensions, with anti-Japan protests across China and a boycott of Japanese brands taking place.
Developments over the past few weeks highlight that the situation is once again precarious.
In November, China declared an air defense zone in the East China Sea covering territory claimed by China, Japan, Taiwan and South Korea. It has also implemented new fishing restrictions in the South China Sea since the start of the year, upsetting its neighbors.
(Read more: Japan condemns China fishing curbs; vows to defend islands)
Meanwhile, a visit by Japan's Prime Minister Shinzo Abe to the Yasukuni war shrine in Tokyo that honors Japan's war dead, including some convicted war criminals, last month sparked outrage from China and South Korea. Yasukuni is seen as a symbol of Tokyo's aggression during World War Two, when Japan occupied large parts of China and the Korean peninsula.
A longtime no-war pledge has also been removed from Japan's ruling Liberal Democratic Party annual working policy, media reported this week.
Added to all this was confirmation by Washington last month that a Chinese warship nearly collided with a U.S. Navy guided missile cruiser in the South China Sea in what experts say was the most significant U.S.-China maritime incident in the area since 2009.
Here's a full time-line of recent geopolitical tensions in Asia: China-Japan tension chronology.
Analysts point out that the dispute in the East China Sea over islands, Japan refers to as Senkaku and China calls Diaoyu, lie in an area which is rich in oil, natural gas and fish.