Additionally, how was Japan able to dominate China in modern times when Japan is geographically much smaller and less fertile than China?
I don't know what you mean by ancient times, but if you read the following books, you'll understand that around 1750-1800 there were a number of places in the world that had high standard of living comparable to what people in northwest Europe had (London, Paris). These places were the regions around Osaka and Edo, Yangtze river delta, the triple city of Wuhan, Bengal India etc.
Our understanding of the economic conditions of countries back then is clouded by making the wrong comparisons. We used to compare England with China. Two places that's completely different in size and population. We should have been comparing comparable places. So England with Yangtze Delta, or Europe with China. When you do it this way then the comparisons look better.
Nakane Chie and Oishi Shinzaburo, Tokugawa Japan is a good starting point for Japan. Unfortunately the best works on Japan's premodern economic history tend to be in Japanese.
James McClain, et al, Edo and Paris is a great book of essays that shows the parallels between these two cities in the early modern era and how the 2 really do compare well.
R. Bin Wong, China Transformed and Kenneth Pomeranz, the Great Divergence, these 2 books focus on China.
William Rowe Hankow 2 vols. (this book is a dense but awesome urban history of a Chinese city)
Prasannan Parthasarathi, Why Europe Grew Rich and Asia Did Not focuses on India.
A G Frank, ReOrient takes a global view and makes the argument that before the 1500s many places in Asia were richer than Europe.
Interestingly Timur Kuran in the Long Divergence makes the argument that the regions in the Middle East such as centered on Istanbul began to be left behind starting in the 1700s (after maintaining comparable development until the 1600s).
TL:DR Before industrialization and imperialism kicked in (until 1750-1800), many places in the world achieved high standards of living through intensive agriculture and trade. Japan in that sense was not unique.
What do you mean by economy? As in Japan traded and thus had a trade deficit/credit or that there was a transfer of goods and services for payment within the local economy?