Protesters holding posters of China's late Chairman Mao Zedong, Chinese national flags and banners as soldiers and policemen stand guard during a protest in Beijing

REUTERS

Japanese businesses shut hundreds of stores and plants and the country's embassy suspended services in China on Tuesday as anti-Japan protests reignited and risked dragging a territorial dispute between Asia's two biggest economies deeper into crisis.

Two Japanese nationals landed on one of the islands at the centre of the dispute, Japan's coast guard said, raising tensions in an area already patrolled by ships from both nations and increasing fears of direct clashes.

China's worst outbreak of anti-Japan sentiment in decades has led to protests and attacks on Japanese companies such as car makers Toyota Motor Corp and Honda Motor Co, forcing them to halt operations, reports Reuters.

Other well-known Japanese firms -- from Mazda and Mitsubishi Motors to Panasonic and Fast Retailing -- also shuttered plants and stores in China, sending Japanese share prices falling and prompting a warning from credit rating agency Fitch that the situation could hurt some auto and tech firms' creditworthiness.

Hitachi Construction Machinery recalled 25 Japanese workers back to Japan because of the unrest.

"My family and my husband, who is currently in Japan on business, are worried about us being here," said Mutsuko Takebayashi, a Japanese expatriate housewife living in Shanghai who planned to take her family back to Japan on Tuesday.

"It's possible that Japanese companies will start evacuating families back home and if that happens it'll be too late to book tickets. That's why I'm going back today," she said.

Japanese restaurants, a common target of protesters, barred their doors while many Japanese expatriates stayed inside, afraid that Tuesday's anniversary of Japan's 1931 occupation of parts of mainland China could lead to outbreaks of violence.

As demonstrators across the country took to the streets, carrying Chinese flags and portraits of Mao Zedong, Chinese police issued warnings against unruly behaviour, although state-run media struck a more hostile tone, linking the territorial dispute with bitter memories of Japanese occupation.

"Wipe out all Japanese dogs," read one banner held aloft by one of thousands of protesters marching on the Japanese embassy in Beijing, which was ringed by riot police standing six rows deep. In southern Guangzhou, protester Wang Qian held a banner reading "Japan is a dog of the Americans".

Tensions were also high out at sea, around the disputed group of uninhabited islets at the centre of the row. In the East China Sea, the islands are called the Senkaku by Japan and Diaoyu by China and are near potentially large gas reserves.

Two Japanese nationals briefly landed on one of the islands, having paddled up to it in a rubber raft and swum ashore before returning to the boat, Japanese broadcaster NHK said.

A flotilla of around 1,000 Chinese fishing boats is also reported by Chinese and Japanese media to be heading to the area. Japan said a Chinese fishing patrol boat had broadcast a radio message declaring the waters to be Chinese territory and asking Japanese Coast Guard vessels to leave. It was not clear how many of the Chinese boats had reached the area.

In 2010, a bilateral crisis over the islands erupted after a fishing boat collided with a Japanese Coast Guard vessel.