The Chinese animosity toward Japan dating back to World War II and fanned by the Chinese Communist Party is not a new thing. Neither is the rising nationalism in both countries. Japan's Minister of Foreign Affairs Taro Aso declared China a threat recently, but alas this is also nothing new.
The latest round of bickering was brought about by the suicide of staffer at the Japanese consulate in Shanghai. According to a spokesman for the Japanese Foreign Ministry, "an impermissible act by the Chinese security authorities" was the catalyst for the suicide. Japanese media has filled in the details that the spokesman left out. From the Yomiuri Shimbun:
A Chinese man who approached a staff member at the Japanese Consulate General in Shanghai who later committed suicide was apparently an intelligence operative and demanded the staffer supply secret information, including Japan's policy on the territorial dispute over the Senkaku Islands, according to sources...
The man told the staffer [a Chinese female "acquaintance"] had broken the law and would be punished. He also told the staffer that he faced punishment or forced repatriation as her accomplice. He then asked the staffer about the Japanese government's policy on the disputed island and said that both of the woman and the staffer would be punished if he refused to provide the information.
There is speculation that the details of the case were intentionally leaked by the Foreign Ministry and and even granted them to publish the information.
The Chinese Foreign Ministry has replied with "strong indignation" over the "vile behavior" of the Japanese government. According to Qin Gang, spokesman for the Chinese Foreign Ministry, the allegations are due to "ulterior motives" namely smearing China's international reputation.
Update: The Horse's Mouth has a post on Japanese feelings toward China reaching a low point.