The economic pundits are expecting china as the world’s largest economy by the year 2027 leaving behind the United States of America. China has also taken over from Japan to become the top trading partner of Asian countries, including Japan itself and the United States, cementing its position as a growth engine for the world. The Japanese economic experts are also pessimist about their economy. The strengthening of Japanese yen has harmed the exports badly and the Japanese companies are moving production overseas to avoid the damages. This would definitely result in unemployment that is already at 5.7 percent. The consumer spending will also fall from 60 % of the GDP. Indeed, Ito explains that unless Japan takes drastic steps to put its economic house in order, it can slide into its “third lost decade” after this year, referring to the economic malaise that set in when the country’s economic bubble burst in 1990. Japanese politics stands on the economic development of the country and if the economic pillars falter its political influence would also reduce. Due to these reasons Japan is strengthening economic ties with china to use the biggest consumer market of the world comprising of 1.6 billion people. On the other hand Chinese economic progress does not depend only on Japan. The experts are of the opinion that china and Japan should cooperate like the countries of European Union and should make a plate form like that for their economic activities. Japan’s beurocratic and old system is said to be responsible for this turmoil. The immigration to Japan may alleviate the situation, but that is not available on the larger scale. Japanese called 150000 people but only 68000 were reported to immigrate to Japan two years ago. An interesting fact is that the people of Japan themselves do not want Japan to become a global power. They wish their internal stability economic and political.The worries for Japan are that china is leading her in Asia as well as world. China has become the second largest nation as far as economy is concerned. Japan is no more the only leader in Asia. It is not less than a blow for Japan and that too at the time when the hard working nation is suffering from internal political and economic crises. Japan is giving more attention to its internal problems and it has become high time for Chinese to lead the stage. Once Japan lags behind china it would be very difficult to rub the shoulder with china. The few coming years seems very decisive and it seems time is favoring China. Japan would not be able to give full attention to external policies as the home is in disorder. Gone are the days when china was considered the recipient of Japanese’s aid. Now she is a power in itself. The following facts and figures reveal the reality that after the mid 2010 china has surpassed Japan as world’s second largest economy with its Gross Domestic Product at 1.33 trillion U.S. dollars. Japan is lagging behind at 1.28 trillion dollars. This difference in GDP will surely widen in the next years .another instance of the fact is the low growth rate of Japanese economy that is only 0.4 percent while World Bank predicts 10 percent growth rate for china.These are mere theories; the situation on the ground is the receding influence of Japan from the Asian markets especially Pakistan and Sri Lanka. The capital investment of china is increasing in Sri Lanka and Pakistan. China is cooperating in defense systems with Pakistan too. It is becoming more and more difficult for Japan to tackle Chinese ascendance.