An off-the-cuff remark by new Prime Minister Sanae Takaichi that triggered Japan's biggest bust-up in years with powerful neighbour China was not meant to signal a new hardline stance.

But after openly stating how Japan might react to a hypothetical Chinese attack on Taiwan, she will struggle to defuse a dispute that could hammer the economy, two government officials with knowledge of the matter said.

China has expressed its displeasure through various measures designed to hurt Japan’s economy in the wake of Takaichi’s comment. Officials describe it as unscripted and made during her first parliamentary grilling.

These actions include a boycott on travel, a ban on seafood imports, and cancellations of meetings and cultural events.

But Takaichi cannot satisfy Beijing's core demand to retract her comment that an attack on Taiwan, the democratically-governed island claimed by Beijing, could bring a military response from Tokyo, the officials said.

One official remarked, "It would have been better not to say it, but it’s not incorrect. We can’t retract it."

Despite the controversy, public opinion polls show Takaichi's popularity remains strong domestically. A spokesperson for her office affirmed that her comments do not alter Japan’s official position, stressing that the country remains open to dialogue with China.

The Chinese foreign ministry did not respond to requests for comment on the issue.

Long and cold winter ahead

Previously, Japanese leaders avoided discussing Taiwan in the context of military scenarios, adhering to a strategic ambiguity favoured by both Japan and its main security partner, the United States.

Jeremy Chan, a senior analyst at Eurasia Group, stated that Takaichi's remark has left her in a position where there is no immediate way to back down. He predicted a prolonged chill in relations between the two Asian powers that could extend throughout Takaichi’s premiership.

Beijing has already ruled out the possibility of a meeting between Takaichi and China’s Premier Li Qiang during the upcoming G20 summit in South Africa, further deepening the rift.

Some analysts draw comparisons to the 2012 dispute over Japan’s decision to nationalise disputed islands, which triggered widespread anti-Japan protests in China and caused a diplomatic freeze lasting over two years.

Takahide Kiuchi, an economist at Nomura Research Institute, warned that if the current downturn continues, Japan could face significant economic damage, including losses of more than $14 billion annually from a Chinese travel boycott alone.

The greater concern is that China could restrict the supply of essential minerals, crucial for industries ranging from electronics to automobiles. Japan still relies heavily on China for its rare earth imports, with around 60% of these materials coming from there. A broad boycott of Japanese goods, as seen in 2012, could result in a loss equivalent to 1% of Japan’s GDP, particularly impacting the automotive sector.

Cold meeting in Beijing

Efforts by Japan to ease tensions have only highlighted the deep divide between the two nations. During a meeting on Tuesday in Beijing, Liu Jinsong, a senior Chinese official, described the talks as "solemn."

Both sides reiterated their grievances, and Liu’s choice of attire—a five-button, collarless suit—was seen as a deliberate symbol of defiance, referencing a 1919 student uprising against Japanese imperialism.

The meeting was also marked by Liu standing apart from his Japanese counterpart with his hands in his pockets, a gesture viewed as disrespectful in formal settings. Chan from Eurasia Group noted that China typically conducts its diplomacy behind closed doors, so the fact that this was done publicly suggests China wanted to make a statement to the international community.

Both Japanese officials indicated that no clear path exists for resolving the current impasse.

"Right now, there’s not even a starting point for improvement," one said.

Meanwhile, China has ramped up its attacks on Takaichi. A Chinese diplomat appeared to threaten her with beheading in a now-deleted social media post, and a nationalist commentator labelled her an "evil witch." A cartoon on China’s military social media account depicted her burning Japan’s pacifist constitution.

A senior U.S. diplomat in Asia, speaking anonymously, expressed doubts about any near-term resolution, suggesting that China may only seek to ease tensions with Japan if it encounters further difficulties in its relations with Washington.

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