Here's Everything You Need To Know About The Spiraling Conflict Between China And Japan

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Flag-burning, state-organised protests, and diplomatic strife have broke out between Asia’s two largest economies.

Is this really about a single captured fisherman? Of course not.

Economically, Japan is shrinking while China grows, and the two are doing everything they can outwit the other in a game of currency revaluation. Politically, Japan is fighting to hold power in a upended region.

This is the fisherman who provided the spark

Captain Zhan Qixiong (centre) piloted his boats in foreign waters and collided with two Japanese coast guard boats.

The Japanese arrested the crew, eventually releasing everyone but Zhan. Japan will try the captain on Wednesday, and may sentence him to up to three years in jail, according to local laws.

China's foreign ministry has demanded his immediate release.

These are the islands that China has claimed

Japan pledges to 'respond appropriately' to Chinese moves to explore oil by islands claimed by Japan.

The uninhabited islands are controlled by Japan, according to the US state department. They are a legacy, however, of Japan's invasion of China in the 1930s.

This was the yen intervention that incensed China

Japan's shocking yen intervention last week caused a significant weakening against all currencies, including the yuan.

The Bank of Japan made this move to support exporters, hoping desperately to kick two decades of deflation. The Nikkei loved it.

But this was forex trend that forced a Japanese intervention

The yen has been strengthening against the yuan all year -- all decade for that matter.

The Japanese were understandably upset to see China become even more of a cheap export powerhouse. This was a major reason behind the yen intervention, as claims US Sen. Sander Levin.

Although China agreed to weaken the yuan, it may renege

The G20's message to China has been blunted by the yen intervention, FT says. Now China may ask why Japan is allowed to weaken its currency, while it is asked to do the opposite.

That's also a big disappointment for Tim Geithner, who wants to support US exports.

Chinese are also upset about low wages at Japanese factories

Back in August, Chinese Premier Wen Jiabao demanded Japanese factories in China raise wages.

Chinese workers have been aggravating all year for higher wages. The government supports this push as a way to rebalance China's new wealth and nurture and consumer class.

But Wen notably singled out Japanese factories, not Korean, American, or others.

Then China sued a Toyota factory... over bribery charges

Yesterday China announced it was suing Japanese automaker Toyota for bribing local car dealers. Authorities say this is unrelated to other issues -- but the timing is notable.

The official Xinhua News Agency reported that authorities would fine the company 140,000 yuan ($20,650) and have confiscated 426,352 yuan ($65,500) in 'illegal earnings' from 49 car sales.

China has also passed Japan in GDP

What does two decades of stagnation in Japan and two decades of golden growth in China get you?

China passed Japan in GDP this year (It's on track to pass the US in less than two decades).

China and Japan are also feuding over ANOTHER Pacific landmass

This time Japan is the aggressor. Back in January Japan announced plans to build a port on the uninhabited Okinotorishima atoll.

Currently, the land mass is not recognised as an island, which means its owners get no claim to surrounding waters. Building a port, however, would make it an island.

This issue is still hot.

All of this comes with historical tensions

Last Saturday was the 79th anniversary of the Japan's invasion of Manchuria.

Chinese still resent Japanese imperialism. They also resent US support through the 20th century for capitalist Japan, which powered a Japanese economic boom.

Here's how their future economic plans conflict

Japan wants to weaken its currency to restart its export engine after a two-decade stall-out.

China wants either to strengthen its currency, rebalance domestic wealth, and nurture domestic consumption or to keep the yuan weak, send out cheap exports, and do what worked for the past decade.

It's easy to see how these two economies COULD work together. But doing so requires trust and cooperation. Think that can happen?

Otherwise Asia's two biggest economies are headed for a trade war.

Is a trade war with America next? Check out...

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