By Flavia Krause-Jackson and Stuart Biggs - 2012-09-26T23:17:41Z

Japan will never budge on its sacred ownership claim to islands in the East China Sea also claimed by China, Prime Minister Yoshihiko Noda said, doing little to ease tensions with Asias top economic power.

While Japan isnt seeking a military confrontation with China and wants to keep talking calmly, the disputed islands are an inherent part of our territory in light of history and also under international law, Noda told reporters in New York today in comments translated into English by an interpreter.

Tensions over the islands, known as Diaoyu in Chinese and Senkaku in Japanese, have spilled over onto the sidelines of an annual gathering of world leaders at the United Nations. The foreign ministers of China and Japan yesterday held talks at a hotel in New York that revealed no room for compromise.

Nodas words came amid the worst diplomatic crisis between the two nations since 2005. A first round of talks yesterday did not go well. China will not tolerate Japans claims to islands in the East China Sea, the Chinese Foreign Ministry said after its minister, Yang Jiechi, met with his Japanese counterpart Koichiro Gemba.

Japans Gemba described the atmosphere at the meeting as severe and emphasized Japans maximum restraint over the dispute, Kyodo News reported yesterday.

There was agreement to maintain lines of communication through working-level talks, Japanese Chief Cabinet Secretary Osamu Fujimura told reporters today in Tokyo, adding that the meeting lasted about an hour. There are no magic tricks in diplomacy. It all comes down to holding talks through various channels and at various levels.

The crisis sparked protests in China that have damaged operations for Japanese companies. Reservations for more than 40,000 seats on All Nippon Airways (9202) flights were canceled from September to November, Executive Vice President Osamu Shinobe told reporters in Tokyo today. Japan Airlines Co. (9201) had 15,500 cancellations as of Sept. 24. Nissan Motor Co. (7201) said its halting production in China to reflect falling demand,

Organizations in the two countries canceled or postponed a series of events, including plans to mark the 40th anniversary of diplomatic relations. China skipped an international disaster relief conference in Tokyo, Xinhua reported. It said Chinese leaders in the Japanese city of Yokohama announced they would cancel an annual National Day parade on Oct. 1.

Nissan, the top Japanese seller of vehicles in China, said today its August output in China fell by 8.9 percent from a year earlier to 86,488 units. Chinese production dropped 18 percent to 67,625 vehicles at Toyota Motor Corp. (7203) and declined 10 percent at Honda Motor Co. (7267) Japanese autos will lose their lead this year over German nameplates for the first time since 2005, Chinas Passenger Car Association estimates.

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Japan Won’t Compromise With China on Claim to Islands, Noda Says