Shares of both Toyota Motor and Nissan Motor fell 3 percent in Tokyo trading on Wednesday on news the automakers will halt production at plants in China in the wake of the worst anti-Japan protests in decades.
While the development has heightened concerns about the impact of the rift on Japanese businesses, analysts CNBC spoke to maintain that the repercussions are likely temporary and it’s too early to be concerned about the automakers.
Nissan on Wednesday said it was extending its production closure during the China Golden Week national holiday—scheduled for next week—by three days, starting on Thursday. After the close of Tokyo markets, Toyota also confirmed reports that it would suspend output at two Chinese joint ventures from Wednesday through to the end of next week.
The anti-Japan sentiment in China has already affected sales of automakers. Earlier this month, Nissan CEO Carlos Ghosn told CNBC the situation was worrying, after the firm expressed concerns that the island dispute may have hurt August sales.
While Toyota's spokesman Dion Corbett declined to reveal specific figures, he told CNBC "there is definitely an effect now in China on orders and sales." According to Toyota's website, the two joint ventures that are extending their holiday hire a combined 21,142 workers and produce models such as Vios, Camry, Corolla and Yaris.
All Toyota plants in China are scheduled to reopen October 8, but the production levels "will be adjusted according to the situation at that time to meet demand," Corbett added.
According to Lin Huaibin, analyst at IHS Automotive in Shanghai, orders of Japanese cars in China have indeed suffered a drop in October, a traditionally strong month for sales. Still, he predicts that the impact will be short-lived.
“It seems like for October, there is some kind of big drop. We are hearing 30 to 50 percent from our sources, but we have some doubts whether it’s going to be long term,” Lin said. “The situation will calm down within the next one month or so, and then demand will resume again.”
Chinese are boycotting Japanese products and stores after tensions between the nations flared up over three disputed islands in the East China Sea earlier this month. Japan said it bought the islands from a private buyer, and this triggered violent protests across China last week and threatened economic ties between Asia’s two biggest economies.
While sentiment towards Japan is very “negative” at the moment in China and news of the shutdown is not positive, Jeong Min Pak, autos analyst with Fitch Ratings in Seoul, isn’t overly worried yet.
“Next week is the Golden Week anyway,” Pak said, referring to the annual week-long holiday when businesses across China typically shut down. “There seems to be very negative sentiment but whether it prolonged, I think, it remains to be seen at this point. I am reluctant to over-react.”
Fitch had warned last week as anti-Japan protests in China escalated that Japanese auto makers, along with technology firms, could risk having their credit ratings downgradedif the dispute between Asia’s two biggest economies is prolonged.
According to Fitch, Nissan has the greatest exposure to China among Japanese firms it tracks, deriving about 26 percent of its total revenue from the country in the year ending March 2012.
Toyota's exposure to China is also significant, with the country accounting for about 10 percent of the automaker’s total global sales in the same period, Fitch said.
—By CNBC’s Jean Chua.