- Associated Press - Wednesday, October 10, 2012

TOKYO — The craggy island specks in the East China Sea aren’t even an economic backwater. They have no factories, no highways, no shops, no people – only goats.

But the high-pitched row between Beijing and Tokyo over their ownership is exacting a growing toll on Japan, threatening to send its recovery from last year’s disasters into reverse.

Sales of Japanese cars in China are in a free-fall. At the China Open last weekend, a representative of Sony Corp., which is a sponsor of the tennis tournament, was booed loudly at the title presentation for the women’s final.

Chinese tourists are canceling trips to Japan in droves. Some analysts say Japan’s economy will shrink in the last three months of the year.

The business and economic shock waves come after Japan last month nationalized the tiny islands, called Senkaku in Japan and Diaoyu in China, which already were under Tokyo’s control but also are claimed by Beijing.

The move set off violent protests in China and a widespread call to boycott Japanese goods. Toyota Motor Corp. and Honda Motor Co. dealerships were burned down in one city.

Seeing footage of Toyota cars getting smashed by angry rioters, Toyota President Akio Toyoda looked almost tearful, confiding to reporters: “I couldn’t bear to watch. It hurt as though I was getting beaten.”

A report by J.P. Morgan, released Tuesday, projected Japanese auto exports to China will crash 70 percent during the October-December period.

The export of auto parts will slip by 40 percent — about the same drop estimated for exports of other consumer products, such as electronics, the report said.

The aftermath of the latest phase of the territorial spat with China will cause Japan’s economy, the world’s third-biggest, to shrink 0.8 percent in the fourth quarter, according to J.P. Morgan. It previously had forecast no growth in the quarter.

J.P. Morgan chief economist Masaaki Kanno fears the fallout could get worse in the months ahead, as the September sales numbers for Japanese automakers only account for damage that started the middle of the month.

Toyota said Tuesday that sales of new vehicles in China fell 49 percent, to 44,100 vehicles, in September, compared to a year ago. Honda said September sales plunged 41 percent, to 33,931 vehicles.

China sales for Nissan Motor Co. slid 35 percent last month to 76,100 vehicles.

Even the most optimistic scenario does not foresee a recovery in Japan’s economy until the second quarter of next year, Mr. Kanno said.

“What we have ahead of us is going to be terrible,” he said. “It’s like last year’s disaster all over again.”

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