Japan's prime minister has called on China to scale back its military spending on a day when he compared the mounting tension between Asia's two biggest economies with the rivalry between Britain and Germany before the first world war.

Shinzo Abe used a keynote address to the World Economic Forum in Davos to hail a new dawn for his country and said the fruits of growth in Asia should be used for innovation and investment in human capital rather than weapons.

Earlier, Abe said the frayed relationship between Tokyo and Beijing was similar to the situation in Europe pre-1914. He said a conflict between the two countries would be disastrous, but refused to rule it out. "Trust, not tension, is crucial for peace and prosperity in Asia, and in the rest of the world," he said. "This can only be achieved through dialogue and the rule of law, and not through force or coercion.

"We must restrain military expansion in Asia, which could otherwise go unchecked. We should create a mechanism for crisis management as well as a communication channel between our armed forces."

Relations have soured between Japan and China since Abe became prime minister in 2012, with Beijing irked by what its leaders have seen as a more nationalistic approach to foreign and defence policy. But A flashpoint has been the disputed ownership of islands in the East China Sea but Abe insisted that Japan had no military ambitions. "Japan has sworn an oath never again to wage a war. We have never stopped and will continue to be wishing for the world to be at peace."

Abe's willingness to take a tougher line with China has accompanied signs that Japan is at last emerging from a 20-year period of sluggish growth. He insisted that a radical new approach to monetary and fiscal policy would be followed by supply-side reforms including a big increase in the number of women working. "Japan's economy is just about to break free from chronic deflation. This spring, wages will increase. Higher wages, long overdue, will lead to greater consumption.

"Pundits used to say Japan was at dusk, or the land of the setting sun. They said that for a country as mature as Japan, growth would be impossible. These arguments were made to sound almost legitimate.

"It is not twilight, but a new dawn that is breaking over Japan."

Abe's critics have said that he was quick to fire the first two "arrows" of Abenomics – a quantitative easing programme to raise inflation to 2% and increases in public spending to boost growth, followed by tax increases – but slow to let loose the third arrow of supply-side reform.

But Abe said he was taking measures to cut corporate taxes, attract inward investment and increase female participation. He pledged that by 2020 he would ensure that 30% of leading positions in business were occupied by women, a far higher percentage than in either Britain or the US.

"Japan is becoming a super-ageing society, even as the number of children is falling. You might find yourself asking, 'In such a country, where will you find those innovative and creative human resources?'" Noting that Japan's GDP could be boosted by 16% if women's participation in the labour market was raised to the level of men's, he added that it was time to break the male stranglehold.

"Japan's corporate culture is still one of pinstripes and button-downs. After all, the female labour force in Japan is the most underutilised resource. Japan must become a place where women shine."

He added that Japan would also import foreign workers to help with "housework, care for the elderly, and the like".