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This research aims to analyze the recent developments in the strategic interactions between Japan and China over their territorial disputes in the East China Sea from the perspectives of statistical and game-theoretical modeling. Two linear regression models were run in scope of this study. The first model assesses the effect of political deterioration between the two nations on their economic relationship. The second model deals with the test of the relationship between the dynamics of public opinion of China shared by the Japanese people on the volume of Sino-Japanese trade.The methodology of this study also includes application of a deterrence model to Sino-Japanese territorial disputes. By analyzing the case studies of incidents between Japan and China over the disputed islands in the East China Sea, this study tracks the evolution of strategies of different administrations both in Japan and China. The importance of the signaling is assessed. The paper concludes with the demonstration of the implications of the model for the understanding of the motivations behind the actions of Japanese and Chinese leaderships.

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