With the continual escalation and especially since our 影帝溫爺爺 came out to deliver the tough talking, Japan is obviously seeing the severity of the issue. The thing is, since Japan has been holding up an extremely firm front, probably nobody knows what exactly Japan can do to give themselves a graceful exit from the dispute. The funeral or mid-autumn release would have given both Japan and China a perfectly good exit, but Japan didn't grasp the seriousness of the issue at the time.
At this point, I don't see any reason for things to get ugly and military, although I would very much like to see PRC send a couple of navy ships over to the Diaoyu Islands to proclaim their sovereignty rights. Even if Japan doesn't back down, I think China is far more likely to flex its economic muscle and other administrative means to snub Japan, and I am perfectly happy to see that happen. Refraining from going military will also give the US no excuse to significantly step in and interfere.