Zero Hedge 
Sept 20, 2010
On the anniversary of the 1931 Japanese invasion of China, tensions between the world’s second and third largest economies are escalating. The Associated Press reports that late Sunday, China broke off high-level government contacts with Japan “over the extended detention of a fishing boat captain arrested near disputed islands. The rare move pushed already tense relations to a new low, and showed China’s willingness to play hardball with its Asian rival on issues of territorial integrity.” The latest straw on the camel’s back was the detention of a Chinese fishing boat and its captain, after it hit two Japanese Coast Guard boats in the East China Sea, a territory claimed by both countries, as previously reported by Zero Hedge.Furthermore, ” the captain’s detention for further questioning — pending a decision about whether to press charges — has inflamed ever-present anti-Japanese sentiment in China.” China reaction has been swift and merciless, proving just great the ego of the now second largest economy, and largest holder of US debt, has become: “Beijing has suspended ministerial and provincial-level contacts, halted talks on aviation issues and postponed a meeting to discuss coal.” Also, attached pictures of Japanese flag burning can not instill much confidence in Sino-Japanese relations stabilizing any time soon.
More from AP :
“If Japan acts willfully, making mistake after mistake, China will take strong countermeasures, and all the consequences will be borne by the Japanese side,” Chinese Foreign Ministry spokesman Ma Zhaoxu said in a statement.
Takeshi Matsunaga, a spokesman for Japan’s Foreign Ministry, said the reported measures were unilateral.
“We ask China to respond calmly so as not to escalate the problem further,” he said.
And one can be absolutely certain, that a direct result of this action will be the massive gobbling up of even more JGBs in an attempt by the PBoC to once again streghten the yen, as Central Bank warfare escalates, forcing the Bank of Japan to intervene yet again in the FX market, further angering Europe, whose currency has surged by over 10% in the past week, and making life for investors on either side of the Atlantic and Pacific ever more unpredictable, in a landscape in which the biggest marginal buyers (and sellers) of securities are increasingly the central banks themselves. The only winner out of this: the US Treasury department which buys even more time to proceed with a failed Keynesian policy of pereptually debt-funded, deficit creation.