New data on Monday showed that Japan's recession-hit economy shrank last year to a nominal gross domestic product of just under 5.1 trillion dollars compared to fast-growing China's GDP of 4.9 trillion dollars.

If those trends continue, the island-nation will soon give up its status as Asia's top economy to its traditional rival, the population giant whose rapid rise many Japanese view with a sense of trepidation.

Finance Minister Naoto Kan last month echoed the sentiments of many when he admitted to mixed feelings, even as he sought to focus on the bright side for Japan, which stands to benefit economically from China's boom.

"Generally speaking, we welcome the growth of China and Asia and believe that Japan must work hard to benefit from it," said the 63-year-old.

But he added: "Japan has long been called the world's number-two economic power. For my generation, the people who grew up during Japan's high-growth era, it is rather sad to give up that title to China, to be honest."

Others take a pragmatic view and say Japan must not dwell on the past.

"It has been only a matter of time," said Japan Chamber of Commerce chairman Tadashi Okamura, a former chairman of electronics giant Toshiba. "Japan must immediately rid itself of its identity as the world's number-two economy."

The Japanese public is divided. A recent nationwide survey by the Yomiuri Shimbun daily found that 29 percent of respondents thought an ascendant China would benefit Japan, while 31 percent feared it would harm their country.

The November poll reflected a wider unease about communist-ruled China, a former wartime enemy that is now a geopolitical heavyweight, a growing military power and a major competitor for energy and mineral resources.

A full 69 percent of respondents believed "China cannot be trusted."

Business daily Nikkei in a recent editorial called on China to meet its responsibilities as a major power by respecting human rights, consumer safety and intellectual property rights and by fighting global warming.

"The robust development of China creates opportunities for Japan and the rest of Asia. But we should not ignore it if China dodges its responsibility as the number one economy" in Asia, the Nikkei said.

In some ways, China is now where Japan was when it emerged from wartime devastation to launch its "economic miracle", with companies such as Toyota, Sony and Panasonic churning out exports that drove rapid growth.

Japan overtook West Germany as the number-two economy in 1968, helped by an under-valued yen and at the cost of huge industrial pollution, in a rapid rise that sparked envy and triggered trade wars but also commanded global respect.

The Asian juggernaut seemed unstoppable by the 1980s, when the Nikkei index boomed, Japanese companies were gobbling up Western competitors and real estate, and foreigners marvelled at tales of luxury and excess in Tokyo.

Then, 20 years ago, the inflated assets bubble burst, plunging Japan into two decades of stagnation, punctuated by repeat recessions, that dampened consumer spending and ended Japan's jobs-for-life model.

Intensifying global competition has since pushed Japan Inc. to squeeze costs, cut jobs and transfer factories to China and the rest of Asia, where an emerging middle class has become its new key market.

Japan's economy, as it now digs out from its worst post-war recession, has been hit by more bad news, from the bankruptcy of Japan Airlines last month to the global safety recall of more than eight million cars by Toyota.

Japanese can take solace in the fact that they live in a peaceful and democratic country that remains a titan of innovation, and where per-capita income will remain higher than in China for many years.

But more problems loom, including a ticking demographic timebomb. With the world's lowest birth rate, Japan's aging population of 128 million is projected to decline, cutting into its workforce and domestic consumer market.

A centre-left government that took power last summer, ending a half-century conservative reign, has pledged to deepen ties with Asia, but also to reinvigorate Japan itself, crucially with family-first policies to raise the birth rate and to boost the country's domestic economy.

Yorizumi Watanabe, professor of international trade at Keio University, agreed that Japan's biggest challenge is not the expected loss of its global number-two status, but to find ways to change Japan itself.

"Rather than worry about the psychological impact, the bigger problem is to address the shrinking national wealth of Japan," he said. "If things remain unchanged, stagnation will go into a third decade."

Businessman Masaru Koyano, 51, voiced similar thoughts: "China will continue to grow, regardless of what happens to Japan. I don't know what being the number two economy meant for Japan, but we need to give young people attractive jobs that are worth putting their lives into."

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