The Japanese government says it will release delayed aid loans to China worth hundreds of millions of dollars.
Mr Abe said the decision took into account bilateral ties
Japan had delayed a decision on the loans in March as relations between the two countries deteriorated, sparked by disputes over historical issues and energy resources.
But Chief Cabinet Secretary Shinzo Abe said that Tokyo had decided to release the aid after studying the issue.
The move comes amid some signs of improvement in bilateral ties.
In May, the foreign ministers from the two countries met for the first time in more than a year at an international economic conference in Qatar.
Chinese Foreign Minister Li Zhaoxing and his Japanese counterpart Taro Aso held talks which the Japanese side described as "extremely meaningful".
The move to unblock the funds came after a meeting of a government strategy panel.
"We made the decision considering the significance of Japan-China relations, environmental issues and anti-Japanese sentiment in China," Mr Abe said.
Japan will extend funds of 74bn yen ($658m), officials said.
Yasukuni Shrine Japan PM visits shrine which honours war criminals among others
Textbooks Japanese schools have adopted text books which China says whitewash atrocities
Gas fields The countries argue over gas exploration rights in the East China Sea
Disputed islands Both countries claim ownership of Senkaku/Diaoyu islands
In March, Japan said it would delay a decision on paying further yen loans to China because of the two countries' worsening relations.
Mr Abe said at the time that the decision did not mean the government was cutting off or freezing aid to China, but Tokyo needed more time to work on what it called the "various situations" in Sino-Japanese affairs.
Prime Minister Junichiro Koizumi's continued visits to the controversial Yasukuni war shrine in Tokyo have angered China's leaders, effectively freezing high-level diplomatic contacts.
The two sides have also failed to reach agreement on the issue of gas resources in the East China Sea.