Major Chinese State-owned banks skipped the World Bank and International Monetary Fund meetings in Tokyo, amid Sino-Japanese tensions over the Diaoyu Islands in the East China Sea.

Analysts expressed worries that the world economy as well as regional monetary and financial cooperation may take a hit from the islets dispute between the world's second and third largest economies.

According to the Xinhua News Agency, China's "big four" State-owned banks - the Industrial and Commercial Bank of China (ICBC), Bank of China, China Construction Bank and Agriculture Bank of China - will not attend the weeklong events in Tokyo.

The four banks are among the world's top 10 banks by market value, with ICBC topping the ranking.

The absence of Chinese banks was the latest case of stalled Sino-Japanese exchanges following Tokyo's "nationalization" of the Diaoyu Islands a month ago.

Sun Lijian, a deputy director of the School of Economics at Fudan University, told the Global Times Tuesday that Japan has underestimated the impact surrounding the territorial dispute, which chilled Sino-Japanese relations both politically and economically.

The territorial row raised fears of further dragging down the already struggling global economy. The world cannot afford the two economic heavyweights allowing the dispute to drag on, IMF chief Christine Lagarde said in an interview published last week, AFP reported.

Zhang Yunling, director of the Institute for International Studies under the Chinese Academy of Social Sciences, told the Global Times Tuesday that Lagarde's concern was reasonable.

Zhang said the row will not only hurt bilateral trade, but also hit ASEAN countries, given that the two economies are the core of Asia's manufacturing network.

"In recent years, ASEAN's exports to China have expanded rapidly, with the export of auto and electronic components driving up the growth," said Zhang. "Japan's scaling down of production in China would hit them hard."

According to the AP, Toyota vehicle sales in China plunged 49 percent in September, with Honda down 40 percent over the same period. Toyota, Honda and Nissan planned to cut production in China by almost half as a result of recent tensions.

Meanwhile, on the sidelines of the IMF and World Bank meetings, Japan and South Korea agreed on Tuesday not to extend a bilateral currency swap arrangement, reducing the deal between the two countries to the $13 billion level in place prior to the Europe debt crisis, Xinhua reported. The deal was designed to protect South Korea's currency from volatility stemming from the crisis.

"This decision was made purely based on economic and financial factors," AFP quoted Japan's Finance Minister Koriki Jojima as saying.

However, Zhang said the decision must have been affected by the territorial dispute between the two sides over two tiny volcanic islands.

Japan said in August it was considering pulling the plug on the extension when South Korean President Lee Myung-bak landed on the islands claimed by both countries.

Sun says this year should have been a critical juncture for economic integration between China, Japan and South Korea, which form the powerhouse for world economic growth.

Agencies contributed to this story