China Japan Spat

The immediate spat is over the Senkaku or Diaoyu Islands in the East China Sea.

China is the major producer of rare earths in the world. The US had a rare earth mine, but closed it due to environmental and cost issues. Work on this mine and others outside of China are now being done.

I fear China by blocking the export of rare earths is shooting itself in the foot. And right before the US mid-term elections. Poor timing with the Yuan issue.

And other nations in Asia are frustrated with China's claims and actions recently including:

Philippines - South China Sea
Vietnam - Various islands and South China Sea.
Korea - Sinking of ship

China is trying to negotiate with each country directly, while the other countries are trying to work as a group and get US involved.

References:
Amid Tension, China Blocks Rare Earth Exports to Japan - NY Times