Violent protests and calls for boycotts of Japanese products broke out across China in mid-September after Japan nationalized two of the East China Sea islands, known as the Diaoyu in Chinese and the Senkaku in Japanese, by purchasing then from their private owners.

Toyota Motor Corp (7203.T) said on Tuesday that sales in China fell 48.9 percent in September from a year earlier, while Honda Motor Co (7267.T) reported a 40.5 percent slide in its sales there.

Nissan Motor Co's (7201.T) China auto sales, including imports, fell 35.3 percent in September from a year earlier, according to its China venture partner Dongfeng Motor Group Co (0489.HK). Suzuki Motor Corp (7269.T) said shipments to dealerships in China fell 42.5 percent last month from a year earlier.

"Inventories are growing, factories are operating less, and retail is not going well at all," said Koji Endo, a senior analyst at Advanced Research Japan.

"It'll be the German and South Korean makers that will take over share from the Japanese brands when Japanese cars sell less. I don't see a single factor that is positive (for the Japanese brands)."

While the street protests have eased, China has sent its patrol ships into what Japan considers its territorial waters near the islands in recent weeks, prompting Tokyo to lodge protests against Beijing.

Analysts say that sales for Japanese car makers, which together had just over a fifth of the Chinese auto market before the protests, could continue to weaken as long as the diplomatic tension remains.

"We had cut our 2012 sales forecast of Japanese cars by 100,000, but it seems to be way too conservative now," said John Zeng, Asia Pacific director for industry consultancy LMC Automotive. "We had previously expected them to sell 3.04 million, but it will be great if they could move 3 million."

Toyota and its two local Chinese partners sold a total of about 44,100 vehicles in September, the company's Beijing-based spokesman Takanori Yokoi said.

For the first nine months of this year, sales by Toyota and its partners totaled about 640,200 vehicles, up 4.6 percent from the year-ago period, Yokoi said.

Smaller rival Mazda Motor Corp (7261.T) said last week that its China sales tumbled 35 percent in September from a year earlier.

BOUNCING BACK?

According to Toyota sales executives in Beijing and dealers selling Toyota and Lexus cars, sales began bouncing back towards the end of the month, giving hope for an early comeback.

"The biggest question now is how permanent the damage Toyota and other Japanese brands sustained is," a key Toyota and Lexus dealer operator said. "It's too early to say one way or the other, but we are a bit concerned."

A Japan-based Toyota executive has told Reuters that Toyota's production cutbacks in China were likely to extend through November, which points to the company's pessimism over prospects for an early recovery.

At least two Beijing-based Toyota executives have told Reuters that the Japanese automaker and its Chinese partners were unlikely to be able to deliver their goal of selling 1 million cars in China this year. They sold less than 900,000 cars in 2011.

Among the Japanese car makers, Nissan is the most exposed to the Chinese market, followed by Honda and Mazda.

In 2011, Nissan sold 883,000 vehicles in the world's biggest car market, which accounted for about 27 percent of the vehicles the firm sold globally. For Honda, that ratio was about 20 percent, while for Mazda, it was around 18 percent.

For Toyota, Japan's biggest automaker, China accounted for about 12 percent of the vehicles it sold globally in 2011.

Market share of Japanese brands stood at 21.2 percent at the end of August, down from 21.6 percent in 2011, according to official data. German brands advanced to 23.3 percent from 21.3 percent, while market share of Korean brands rose to 9.3 percent from 9 percent during the period.

The dramatic fall-off in demand for Japanese vehicles has been an unexpected boon for other foreign brands. In September, BMW's (BMWG.DE) China sales surged 55 percent, Audi by 20 percent and Hyundai Motor (005380.KS) by 15 percent.

The anonymous Toyota-Lexus dealer operator's read from visiting his Toyota and Japanese-brand car outlets, mostly in southern China, is that 10 percent of his customers have now no intention to buy Toyota cars and cancelled their orders, while 20 percent are sticking to them. "The rest - about 70 percent - are on the fence."

(Additional reporting by Kazunori Takada in SHANGHAI and Yoko Kubota in TOKYO; Writing by Norihiko Shirouzu; Editing by Alex Richardson)

• A Permanent Economic Emergency