Japan's Prime Minister Shinzo Abe on Tuesday suggested a summit with China would improve a relationship that has been badly troubled for months.

The latest sign of a possible thaw came the day Japan's cabinet approved a rise in defence spending for the first time in over a decade, explicitly aimed at beefing up defence of a contested island chain.

It also came as Japan's already well-equipped coastguard said it was creating a special unit with 10 new large patrol boats and a 600-strong force to oversee the East China Sea archipelago.

"A high-level meeting should be held because there is a problem. If necessary, there might be a need to build the... relationship again, starting with a summit meeting," Abe told Nippon Television.

Asia's two largest economies have been at diplomatic daggers drawn since Tokyo nationalised the Senkakus in September.

Japan insisted its move to take formal ownership of islands it controls was nothing more than administrative, transferring the title deeds from an individual to the state.

But China reacted with fury to the move over what it calls the Diaoyus, accusing Japan of reverting to its war-like ways of the last century and forgetting the lessons of history.

Anti-Japan demonstrations erupted in China, targeting Japanese businesses and shops and badly denting the multi-billion dollar relationship on which both countries are dependent.

Since the nationalisation, China has repeatedly sent its ships into waters around the islands in a move that analysts say is intended to prove Japan does not have effective control over them.

Beijing's planes have also flirted with the area and on at least one occasion ventured into what Japan considers its airspace, a move that led to commanders scrambling Japanese fighter planes.

Abe's apparently softer tone -- which stands in marked contrast to the rhetoric of his election campaign -- comes after his envoy met China's president-in-waiting Xi Jinping in Beijing last week.

His coalition ally Natsuo Yamaguchi handed Xi a letter, in which, China's foreign ministry said, Abe expressed a desire to "push forward Japan-China strategic relationships for mutual benefit".

"In the letter, Abe said that Japan-China relations are one of the most important bilateral relationships (and) the two countries share common responsibilities for peaceful development for Asia-Pacific and the world," a foreign ministry spokesman told reporters in the Chinese capital.

At the Great Hall of the People in Beijing both sides expressed appreciation for the trip before beginning private talks.

"Mr Yamaguchi visits China at a period in which Sino-Japanese relations face a special situation. We attach great importance to your visit," said Xi.

Yamaguchi -- who has no official role in the Tokyo government -- said he was "incomparably happy" about the meeting.

Analysts have pointed out that despite their historical differences, the economies of the two countries are so intertwined that neither can afford for the row to continue.

Some observers have likened Beijing and Tokyo to a married couple who go through periods of bickering, but always make up in the end.

However, doomsayers have warned that unless some way is found to move past the territorial dispute, a minor misstep by one side could provoke armed conflict that runs the risk of drawing in Japan's ally, Washington.