Panetta was speaking to reporters while flying to Japan. He left Washington on Saturday for a 3-nation tour, which also takes him to China and New Zealand.
Panetta said provocation and misunderstanding between Japan and China could develop into further violence. He said he will closely watch the situation's development.
He arrived on Sunday night, at the US Yokota Air Base in Tokyo.
Panetta is due to meet Monday with Japanese Defense Minister Satoshi Morimoto and Foreign Minister Koichiro Gemba. Likely items on the agenda include the Senkaku Islands dispute and the Osprey transport aircraft's deployment to the US Marines' Futenma Air Station in Okinawa.
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