Japan stands firm on Senkakus, says minister Japan has no intention of backing down in a damaging spat with China over the Senkaku Islands regardless of the negative impact it might have on economic ties with its largest trade partner, Japan's economics minister told the Financial Times. "It is best if the two countries can maintain good relations, but the problem has to do with Japan's sovereignty over its own territory so we cannot compromise," Seiji Maehara said in an interview on Thursday. Mr Maehara's comments reflect the determination of Japan's Democratic-led government to stand firm against pressure from China to acknowledge its claim to the string of islands in the East China Sea, known in Japan as Senkaku, and in China as Diaoyu. Relations between the world's second and third-largest economies have been seriously strained by the dispute over the islands, which are controlled by Japan but also claimed by China and Taiwan. After the Japanese government acquired three of the islands from their private owner last month, Japanese stores and factories in China were vandalised in violent protests across the country. On Thursday, Hong Lei, the Chinese foreign ministry spokesman, said the clash had caused "grave difficulty" between the two countries. On Wednesday it emerged that Zhou Xiaochuan, China's central bank governor, and Xie Xuren, the country's finance minister, had pulled out of IMF meetings in Tokyo in a move seen as a snub to the host nation. IMF chief Christine Lagarde said she hoped China and Japan could resolve their differences "harmoniously and expeditiously." She said China's top financial officials would "lose out by not attending the meeting." The dispute has led to a sharp fall in the sale of Japanese goods in China and raised concerns about the impact on the regional economy. China accounted for 18 per cent of overall Japanese exports by value in the first six months of the year. In the first 20 days of September, the total value of exports from Japan fell by a tenth from a year earlier, suggesting that the territorial dispute is affecting orders. A month of such "abnormal relations" between China and Japan would have a negligible effect but if the situation continued for three months it could cut Japanese corporate sales by 0.5 per cent and GDP by 0.1 per cent, says Tomochika Kitaoka, Mizuho senior economist. Toyota saw a 49 per cent drop in sales last month in China while Mazda and Mitsubishi Motors suffered declines of more than 60 per cent. Shiseido, the cosmetics company, which derives 10 per cent of overall sales from China, said sales there had shown double-digit growth until September when they suffered a year-on-year drop. "Shopping malls are putting up signs that say they will refrain from selling Japanese goods and some of our products are no longer on shelves," a Shiseido spokesperson in Tokyo said. Masao Toyoda, managing director of F-Tech, a medium-sized maker of car suspensions and pedals which supplies all the leading Japanese carmakers, said production in China had fallen by as much as 50 per cent month-on-month in October. In the wake of the riots in China, Japanese insurance companies, including Tokio Marine and Nichido Fire Insurance, said last week they had stopped writing new contracts for insurance against damage to shops and factories in China because of the increased risks. The woes of Japanese companies have boosted the fortunes of South Korean groups. Hyundai Motor and its affiliate Kia Motors posted record combined sales of 127,827 vehicles in China in September, up 9.5 per cent from a year earlier. "Korean carmakers have benefited more from the anti-Japan sentiment because they compete directly with Japanese rivals in the compact car segment," said Suh Sung-moon, analyst at Korea Investment & Securities. Japan's business community has expressed frustration with the government's stance. Hiromasa Yonekura, head of the influential business lobby Keidanren, openly blamed the government for the boycott of Japanese goods in China. "I understand that the boycott was triggered by what the Japanese side did," Mr Yonekura said this week. "We used to think that politics and economics were separate but it is truly regrettable that the two have become linked to create this serious situation," he said. But Mr Maehara indicated the business community's concerns were unlikely to change the government's stance. "I cannot sympathise with comments that put priority on economic issues because our sovereignty is the basis of the nation on which economic activities depend," he said. He warned that the decline in Japanese sales in China was not just a problem for Japan but would have negative consequences for the Chinese economy as well. Our economic interdependence is very strong [and] if Japanese products made in China do not sell in China, it will have a huge impact on employment there. It won't just affect Japan, it will damp both our economies," Mr Maehara said. Additional reporting by Ben McLannahan, Mitsuko Matsutani and Nobuko Juji in Tokyo, and Song Jung-a in Seoul