Several major Chinese banks have pulled from annual meetings of the International Monetary Fund (IMF) and World Bank to be held in Tokyo next week, claimed a report by the Wall Street Journal on Tuesday, with the territorial dispute between China and Japan now threatening to spill onto the global arena.

On Wednesday, Japanese vice-finance minister Takehiko Nakao expressed disappointment at the Chinese's decision, but said that the recent flare-up should not damage the two Asian economic powers' cooperation in international finance.

"It's really disappointing. I was really sorry to hear that," told Nakao to AFP.

"Political difficulties shouldn't prevent this kind of exchange between Japan and China taking place," he said.

"There has been trust and good cooperative relations ... and my strong belief is that we should continue to do this," he added.

Officially, most of the Chinese banks have not given a reason for their withdrawal. But with escalating tensions between the two countries over the Diaoyu/Senkaku islands, most analysts see that as the prime reason behind the sudden pullout.

"Quite frankly, it's Japan-China relations," told an official, who requested anonymity, at the Tokyo branch of the Agricultural Bank of China to WSJ.

Speaking to Japanese media ahead of the IMF meeting, IMF managing director Christine Lagarde also urged the two countries to set aside their differences and display "a certain degree of tolerance", as they were both "too important" for the global economy.

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"Both China and Japan are key economic drivers that do not want to be distracted by territorial division," Lagarde said, as quoted by the Kyodo News agency.

The current status of the economy and the global economy needs both Japan and China fully engaged.... My dearest objective is that the countries participating in the IMF annual meeting in Tokyo would be prepared to come together, act together and try to go beyond the crisis to sustain the recovery," she later said.