Chinese state television ran footage on Saturday of the Chinese navy conducting live fire drills near a group of disputed islands. Japan bought the islands - known as Senkaku in Japan, Diaoyu in China and Diaoyutai in Taiwan - from a private owner last Tuesday.
"It [the dispute] is about the future of East Asia at a time in which we are seeing major changes in the power structure of the region, that include a decline in American power and a rise in Chinese power and includes insecurity on the part of Japan in the face of those two developments."
- Mark Seldon, from the East Asia Programme at Cornell University
The territory in question is made up of just five uninhabited islands and three barren rocks claimed by not just China and Japan, but also Taiwan.
The Senkakus have been under Japanese rule since 1895 when they were annexed from Taiwan.
They are close to strategic shipping lanes and, according to a 1968 study by experts, are thought to have large oil and gas deposits nearby as well as being surrounded by rich fishing grounds.
Japan's purchase is seen as a highly provocative act and, swept by a wave of nationalism, people took to the streets across China to express their anger - attacking not just the Japanese embassy but also Japanese shops, restaurants and other establishments.
Andrew Leung, a political analyst, told Al Jazeera: "China would not like to be seen again to be sacrificing her territorial interests .... Don't forget for two centuries China was under foreign aggression, so this sits very deeply in the Chinese psyche."
All of this political manoeuvring is happening just as the US is focusing its attention and its military on the Asia-Pacific region.
"Based on historical claims, China argues that it discovered the islands first and also nobody claimed the sovereignty when China did - not until the 1970s …. It is important for China to reassert its sovereignty claims over the islands because of domestic politics and also because of potential resources."
- Richard Hu, an associate professor at the University of Hong Kong
As the largest and most powerful country in the area - both economically and militarily - China is seen as wanting to maintain its role in any potential power shift.
Al Jazeera's Marga Ortigas explains: "Most of China's neighbours are allies of the United States and analysts say the US pivot is emboldening them to now assert themselves and come out from under China's shadow. Any territorial disputes are just a manifestation of a bigger change taking place across the region."
China has also been at odds with Southeast Asian countries over resource-rich islands in the South China Sea. There have been maritime stand-offs and trade repercussions stemming from conflicting territorial claims.
With China at the centre of the region's economic development, its behaviour has been viewed as 'bullying' by smaller countries involved in the dispute.
But the hope remains that a balance between nationalism and regional cooperation for mutual gain is still possible - despite the guns being brought out for show.
So, we ask: Could this long-standing dispute turn into a military confrontation? Who needs who the most and what impact will this territorial dispute have on the two neighbouring countries?
Inside Story, with presenter David Foster, speaks to guests: Richard Hu, an associate professor at the University of Hong Kong; Mark Seldon, a senior research associate in the East Asia Programme at Cornell University; and Tomohiko Taniguchi, a guest professor at Japan's Keio University and a former spokesman for the Japanese foreign ministry.
"I am concerned that when these countries engage in provocations of one kind or another over these various islands, that it raises the possibility that a misjudgement on one side or the other could result in violence, and could result in conflict .... And that conflict would then have the potential of expanding."
Leon Panetta, the US defence chief
FACTS: GROWING TENSIONS
- Anti-Japan protests have taken place in dozens of Chinese cities
- Chinese protesters have called for war with their neighbours
- Japanese restaurants, businesses and cars have been targeted across China
- The dispute is beginning to impact trade between the two countries
- Japanese car manufacturers are reporting a drop in sales in China
- But the governments of China and Japan say they are eager to keep the peace