Japan's outgoing ambassador to China said on Friday that he saw worrying signs of a worsening in the way people in Japan and China regarded each other.

Ties have been frayed since Junichiro Koizumi became Japanese prime minister in 2001 and began annual visits to a Tokyo war shrine that critics say symbolizes Japan's past militarism.

Some convicted war criminals are honored at the Yasukuni Shrine along with the nation's 2.5 million war dead.

There is lingering resentment in China over Japan's invasion and occupation of parts of the country from 1931 to 1945, and anger at the way that Japanese school history books tend to gloss over wartime atrocities.

Ambassador Koreshige Anami said in Beijing on Friday that, while the history issue was a serious matter in bilateral ties, he was more concerned about the way ordinary Chinese and Japanese felt about each other.

"I think what is an even more serious issue is that the thoughts of the people of both countries are growing distant," Anami told a news conference in Beijing, part of which was aired by the NHK network.

He is due to leave Beijing next week after five years in his post.

Anami's comments came a day after Japan, in yet another sign of strained bilateral ties, said it would postpone a decision on making fresh yen loans to Beijing until after its fiscal year ends on March 31.

A Japanese Foreign Ministry spokesman said the delay did not mean Tokyo was cutting off or freezing aid, but a Chinese Foreign Ministry spokesman criticized the decision as unhelpful.

Japan has scaled back low-interest loans to a booming China in recent years and had already decided to halt fresh yen loans to China by the time of the Beijing Olympics in 2008.