England, and I've really never seen it used negatively. To me it's shorthand for japanese, in the same way that brit is for british. None of the Japanese people I've talked to have ever taken offence at it, so I really don't see the issue.
If a japanese person reads this and tells me they take offence at the word, I won't use it around them. For anyone who's not japanese, they frankly would need to get over any negative connotations they have of it, because I'm not going to start writing out the full word every time. >.>