Japanese Prime Minister Yoshihiko Noda warned China, in an interview published on Sunday, that its tough and uncompromising stance taken in a territorial dispute with Japan could weaken the Chinese economy.
"China should be developing through the various foreign investments it receives," Noda told The Wall Street Journal.
"I hope for its level-headed and rational understanding that anything to discourage that is a disservice to itself," he added.
The ongoing row is centered on the Tokyo-controlled Senkaku islands in the East China Sea, which are claimed by Beijing under the name Diaoyu.
On Sunday, China postponed a ceremony marking the 40th anniversary of the establishment of diplomatic ties with Japan because of the territorial dispute.
Meanwhile, as tensions mounted over the disputed chain, two Chinese ships entered waters around the Japan-administered islands, the Japanese coast guard said,
In his interview Noda stated that Japanese companies were now facing a form of economic harassment in China.
"Recent delays in customs and visa issuance are of concern," he said. "Damaging our ties over such things would be bad for not just the two countries' economies, but for the global economy."