The dispute between China and Japan over islands in the East China Sea continues. WSJ Japan Bureau Chief Jacob M. Schlesinger, WSJ reporter Brian Spegele in Beijing, and City University of Hong Kong Prof. Joseph Cheng discuss with Deborah Kan how the dispute began and what can be done to end it. 
 
 The flare-up between China and Japan over a small group of islands has exposed vulnerabilities in the governments of both nations that make diplomatic compromises difficult despite their deep economic ties. 
 
 For China, violent anti-Japanese protests in recent days have laid bare growing public dissatisfaction with China's current generation of leaders, who some protesters describe as weak and incapable of defending territorial claims against Japan. 
 
 Enlarge Image Close Associated Press Protesters shout anti-Japan slogans in Shanghai on Tuesday, the anniversary of a 1931 incident that led to Japan's invasion of China's Manchuria. 
 
 The protests also threaten to raise the stakes for China's next generation of leaders, including Vice President Xi Jinping, who is expected to succeed outgoing President Hu Jintao. In addition to pleasing their own political power bases, leaders like Mr. Xi increasingly have to consider how to handle raucous and increasingly vocal nationalist constituencies. 
 
 Protests Erupt in China Over Islands View Slideshow Associated Press Chinese demonstrators protest against Japan in Chengdu in southwest China's Sichuan province Tuesday. 
 
 In Japan, Prime Minister Yoshihiko Noda—the sixth person to hold that title in six years—faces potential defeat by the end of the year in a general election campaign shaped by an increasingly assertive nationalist movement. Public opinion surveys show Mr. Noda's ruling party is all but certain to get squeezed, possibly coming in third behind two rival parties led by politicians advocating a much tougher stance with China. 
 
 The situations of both governments leave them less room to give ground over the issue of control of the East China Sea islands at the risk of appearing weak. While get-tough attitudes could play well with the public at home, they also threaten to damage relations between nations that form a key trade relationship for the global economy. 
 
 Anti-Japanese protests spread from Beijing to Guangzhou, as the territorial dispute between China and Japan escalates. The WSJ's Brian Spegele tells us why the Chinese government is allowing protesters to take to the streets. 
 
 Anti-Japanese protests in China have led some of Japan's biggest companies to shut their Chinese operations temporarily. The WSJ's Juro Osawa tells us why Japanese companies are cautious and what it means for broader Japan-China economic ties. 
 
 "It is regrettable that politicians are undermining the relationship that has been long built up by the private sector of both countries," said Hiromasa Yonekura, chairman of Japan's chief business lobby. 
 
 Impassioned, though peaceful, demonstrations across China on Tuesday underscored a major dilemma for Beijing: Pursuing a moderate foreign policy toward the Japanese threatens to embolden nationalists and others dissatisfied with government while greater assertiveness would serve as justification in Washington for deeper strategic and military inroads in the region. 
 
 Thousands of protesters in Beijing, Shanghai, Shenzhen and othermajor Chinese cities shouted slogans and lofted banners with heated anti-Japanese rhetoric on Tuesday, the 81st anniversary of a 1931 incident that led to Japan's invasion of China's Manchuria region. They were protesting the Japanese government's recent declaration that it would purchase the islands, which are called Senkaku in Japan and Diaoyu in Chinese. The islands are controlled by Japan but also claimed by China and Taiwan. 
 
 U.S. Secretary of Defense Leon Panetta, meeting with senior Chinese military leaders on Tuesday as part of a broader Asian visit, renewed calls for regional peace. "We are urging calm and restraint by all sides and we encourage them to maintain open channels of communications in order to resolve these disputes diplomatically and peacefully," he said at a news conference on Tuesday with China's defense minister, Gen. Liang Guanglie. 
 
 But Gen. Liang appeared to leave the door open for tougher moves. "We reserve the right to take further actions," he added. "That being said, we still hope for a peaceful and negotiated solution for this issue and we hope to work together and work well with the Japanese government in properly handling this dispute." 
 
 There were signs matters were starting to return to normal for Japanese businesses, many of which closed as a precaution after protesters over the weekend attacked Japanese restaurants and cars. Sony Corp. and superstore operator Aeon Co. said they would reopen, though Toyota Motor Corp. and others said they would remain closed. 
 
 In many cases, the protesters—some of whom were laborers wearing hardhats—sang patriotic songs and held up pictures of Mao Zedong. Some say allusions to the former dictator highlight dissatisfaction with current leaders, who are seen by some in the public as tepid in defending China's political interests internationally. 
 
 "The current government is relatively weak," said a 23-year-old onlooker as he watched protesters near the Japanese Embassy in Beijing. He referred to China's Foreign Ministry as the "Ministry of Protest," a jab at Chinese leaders' repeated statements that they are strongly protesting Japan's moves on the islands and other issues. 
 
 Signs of weakness come at a particularly bad time, as Chinese officials are preparing to begin a once-a-decade change in leadership, likely in the coming weeks. China's economy is slowing. And Chinese Communist Party leaders are considering the fate of Bo Xilai, an ousted politician who led a revival of "red" Maoist culture that remains popular in China. 
 
 "Dissatisfaction with the Japanese is clear. But they also have some expressions of dissatisfaction with China's government and society," said Mao Shoulong, a public-policy expert at Renmin University in Beijing. 
 
 At the same time, the protests and a near-constant loop of anti-Japanese rhetoric on state broadcasters are a helpful distraction for the party ahead of the transition. Analysts say the party appears to be giving those with grudges toward society a way to vent while by and large keeping them under police control. 
 
 "Chinese society has accumulated much dissatisfaction and societal complaints," said Liu Junning, a well-known Chinese political analyst. "They want to find an outlet to release it." 
 
 Beijing fears protests could begin to spiral beyond their control and spur new political consciousness among nationalist Chinese. In particular, the government likely fears any parallel between recent demonstrations and what's known as the May Fourth Movement. 
 
 In 1919, several thousand students took to Beijing's streets to protest in part terms of the Treaty of Versailles that would give foreign-controlled territory in eastern China to the Japanese. The protests and related political and intellectual awakening were among a series of factors paving the way for a Communist Party takeover in subsequent decades. 
 
 Disputed Seas Competing territorial claims have led to maritime disputes off the coast of Asia. View Graphics 
 
 Tensions High Over Asian Islands Competing territorial claims have led to maritime disputes in the seas around Asia. View Slideshow Kyodo/Reuters 
 
 An editorial this week in the popular tabloid Global Times drew a line between that movement and protests playing out across China. Nearly 100 years after the May Fourth Movement, violence regularly accompanies large protests in China, which in some cases wins popular support on China's support, it read. The editorial urged the country to fight against street-protest violence. 
 
 An editorial this week in the popular tabloid Global Times drew a line between that movement and protests playing out across China. Nearly 100 years after the May Fourth Movement, violence regularly accompanies large protests in China, it read. The editorial urged the country to fight against street-protest violence. 
 
 In Japan, authorities said 11 Chinese patrol boats were sighted Tuesday in the areas adjacent to the island's territorial waters. But Japan's top government spokesman, Chief Cabinet Secretary Osamu Fujimura said a large number of Chinese fishing boats that were reported to be heading for the area hadn't been sighted. 
 
 In Tokyo, Japan's top government officials held an emergency meeting Tuesday to discuss a response to the escalating tensions both in Chinese cities and in the disputed waters. "We will stay on guard and take all possible measures," said Mr. Noda, the prime minister. Officials declined to disclose details. 
 
 Mr. Noda's government—already battered over a series of domestic internal political tussles—is likely to be forced to dissolve parliament by November and call a general election. 
 
 A Mainichi Shimbun newspaper poll published Monday showed the chief opposition Liberal Democratic Party drawing support from 19% of voters and the newly formed Japan Restoration Party drawing 11% of the vote. Mr. Noda's ruling Democratic Party of Japan drew 13% support, with indications that number was falling. 
 
 The LDP is in the middle of an internal election to choose a leader for the coming campaign, and the five candidates appear to be competing over how hard a line to take with China. "The Japanese government should lodge a strong protest with China," former Prime Minister Shinzo Abe said in one recent intraparty debate, according to Kyodo News. "Japan should pursue a stern diplomacy toward China," echoed former Foreign Minister Nobutaka Machimura. 
 
 The head of the Japan Restoration Party, popular Osaka Mayor Toru Hashimoto, has also been outspoken in criticizing China. 
 
 The current standoff with China was, indeed, driven by Japan's leading nationalist, Tokyo Gov. Shintaro Ishihara, who made an audacious bid this spring to buy some of the disputed islands from private Japanese owners for his regional government. Mr. Ishihara vowed to develop the islands aggressively, to cement Japan's control, actions he knew to be provocative to Beijing. Mr. Noda's government originally tried to ignore Mr. Ishihara's quest, but then grew alarmed by the outpouring of public support for an online fundraising campaign, and concluded it had no choice but to have the national government step in. 
 
 While Mr. Noda and aides insisted that would be less incendiary to China than Ishihara control, that distinction seemed irrelevant to China, which saw it as an unacceptable upending of the status quo—triggering the latest wave of Chinese protests. 
 
 —George Nishiyama in Tokyo and James T. Areddy in Shanghai contributed to this article. 
 
 Write to Brian Spegele at brian.spegele@wsj.com and Julian E. Barnes at julian.barnes@wsj.com ||||| Starting in 1996, Alexa Internet has been donating their crawl data to the Internet Archive. Flowing in every day, these data are added to the Wayback Machine after an embargo period. ||||| The territorial dispute between China and Japan over tiny uninhabited islands in the East China Sea continues to escalate. Mass anti-Japan protests in China lead to the Japanese suspending businesses and embassy services in China. 
 
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 Workers at a Japanese restaurant cover up the shop front with Chinese national flags and red clothes ahead of major protests expected on Tuesday in Beijing, China, Monday. Chinese are trying to hurt Japan economically for leverage in a bitter dispute over contested islands, turning to angry protests and calls for boycotts of Japanese businesses, abetted in part by China's government. 
 
 Hundreds of Japanese businesses and the country's embassy suspended services in China on Tuesday, expecting further escalation in violent protests over a territorial dispute between Asia's two biggest economies. 
 
 China's worst outbreak of anti-Japan sentiment in decades led to protests and attacks on Japanese companies such as car makers Toyota Motor Corp and Honda Motor Co, forcing them to halt operations and prompting Chinese state media to warn that trade relations could deteriorate. 
 
 More protests continued across China on Tuesday, which marks the anniversary of Japan's 1931 occupation of parts of mainland China. 
 
 Hundreds of protesters had gathered outside Japan's embassy again on Tuesday, some throwing water bottles at the building, which was protected by a heavy police presence, Reuters witnesses said. 
 
 Japan was also bolstering its defences around the disputed East China Sea islands after state media reported a flotilla of around 1,000 Chinese fishing boats was sailing towards them. 
 
 The Japanese coast guard said it has so far been unable to confirm the arrival of the fishing boats, but it spotted one Chinese fisheries patrol ship in waters near the disputed islands shortly before 7 a.m. (2200 GMT) 
 
 The Japanese government has set up an information-gathering operation to monitor the movements of the Chinese fishing boats. 
 
 China and Japan, which generated two-way trade of $345 billion last year, are arguing over the uninhabited islets in the East China Sea, a long-standing dispute that erupted last week when the Japanese government decided to nationalise some of them, buying them from a private Japanese owner. 
 
 The weekend protests mainly targeted Japanese diplomatic missions but also shops, restaurants and car dealerships in at least five cities. 
 
 Toyota and Honda said arsonists had badly damaged their stores in the eastern port city ofQingdao at the weekend. 
 
 On Tuesday, Toyota said it plans to halt operations at some of its factories in China, Kyodo news agency reported. 
 
 Other major Japanese brandname firms announced similar shutdowns on Monday and urged expatriates to stay indoors.
– Anti-Japan protests over the disputed East China Sea islands continued for a fourth day today in China, and Christian Science Monitor Beijing Bureau Chief Peter Ford describes the almost amusing orderliness of them. "The Beijing Public Security Bureau reminds you to please express your patriotism in a rational and orderly fashion and to follow police instructions. Thank you for your cooperation," reads a text message from the Beijing police. And protesters at the Japanese embassy did just that, forming small groups and waiting their turn to march past … as they threw water bottles at the gates. Meanwhile, a loudspeaker played a message on a loop: "The Chinese government shares the people’s feelings. The government has made it clear it will not accept any territorial infringement. But once you have expressed yourself, please move on." Thousands of police guarded the embassy, a sign that China wanted to avoid protests turning violent as they did over the weekend. But, though protests remained mostly peaceful, some demonstrators were attacking Japanese companies including Toyota and Honda, leading hundreds of such businesses to temporarily shut down, the Christian Science Monitor reports. The embassy also suspended services. Meanwhile, Japan was boosting defenses around the islands as a 1,000-strong flotilla of Chinese fishing boats reportedly approached. Japan hasn't seen them yet, but did say 10 Chinese patrol boats are in the area, and added that two Japanese nationals landed on one of the islands today. China quickly complained, the Wall Street Journal reports, and also asserted that it reserves the right to "take further actions," perhaps military ones if necessary, according to the defense minister. Further complicating the situation, Taiwan also claims the disputed area, but wants to help resolve the conflict, Voice of America reports.