The diplomatic back-and-forth shows that nationalistic sentiments stirred up by the incident — and the territorial dispute behind it — are not fading even after Tokyo released the ship’s captain Friday amid intense pressure from China.

Welcoming the skipper home as a hero, China stunned Japan over the weekend by demanding an apology and compensation over his arrest, a move that reflects Beijing’s growing self-confidence and its attempts to test the resolve of key neighbors like Japan, Washington’s closest ally in the region.

Criticized at home for caving in to Chinese pressure, Prime Minister Naoto Kan’s government responded by issuing its own demand for compensation and calling on Beijing to decide whether it wanted to repair frayed ties.

"At this point, the ball is now in China’s court," said Chief Cabinet Secretary Yoshito Sengoku.

The tension has spread into other areas, too. Logistic companies said China has stepped up customs inspections of goods shipped to and from Japan, slowing trade between the world’s No. 2 and No. 3 economies. China also continued to hold four Japanese employees of a construction company suspected of entering a military zone without authorization and illegally filming military facilities.

Some experts saw China’s demand for an apology as overreaching — and bad publicity in a region where neighbors are already concerned about the nation’s expanding military and political clout. China is embroiled in several other territorial disputes.

"Beijing has scored an own-goal here. It really reflects badly on them," said Jeff Kingston, director of Asian studies at Temple University’s Tokyo campus. "All that smile diplomacy, reassuring regional neighbors that the rise of China is unthreatening, has just gone up in smoke."

More broadly, the dispute and others like it has created openings for greater U.S. engagement in Asia as China begins to vie with the U.S. for dominance in the region.

On Friday, President Barack Obama and Southeast Asian leaders sent China a firm message over territorial disputes, calling for freedom of navigation and peaceful resolution of disputes in seas that China claims as its own. Obama said the U.S. plans to "play a leadership role in Asia."

Beijing was furious after U.S. Secretary of State Hillary Clinton told a regional security forum in Vietnam in July that the peaceful resolution of disputes over the Spratly and Paracel island groups in the South China Sea was an American national interest. Beijing said Washington was interfering in an Asian regional issue.

"It is a bilateral problem, but it has multilateral implications," said Kingston. "Ultimately, it’s about who gets to call the shots in Asia — the U.S. or China?"

The Sept. 7 collision happened near a chain of islands in the East China Sea called Diaoyu in China and Senkaku in Japan. About 120 miles (190 kilometers) east of Taiwan, the islands are controlled by Japan but also claimed by Taiwan and China.

The incident has sparked numerous nationalistic protests across China, and experts speculate that Beijing’s insistence on further straining ties with Japan may be driven by stridently nationalistic elements within the Chinese government and military. Emotions can still run high among some Chinese over Japan’s aggression and imperialism before and during World War II.

China has become increasingly assertive in the region as its navy seeks to enforce claims in disputed waters. In April, Chinese ships were spotted in international waters off Okinawa, and in another incident that month, a Chinese helicopter also came within 300 feet (90 meters) of a Japanese military monitoring vessel in the vicinity of a Chinese naval exercise.

"Whenever nationalism gets stirred up by the communist party, there will have to be an explanation given to the Chinese people as to why a diplomatic compromise is acceptable," said Rory Medcalf, program director for international security at the Lowy Institute in Sydney.

Just four months in office, the yet untested Kan has come under harsh criticism at home for the decision to free the Chinese captain. Eight lawmakers from his own party issued a joint statement Monday criticizing the move. They said Japan should permanently deploy its military to the Senkaku islands.

Faced with China’s demand for an apology, Kan was left with little choice but to counter with some kind of tough stand himself, experts said.

The dispute’s escalation reflects the underlying weakness in ties between the Japan and China — and bodes poorly for the future unless both sides can decide to take a more constructive approach.

"I see a real lack of ballast in the relationship," said Kingston. "It shows the dangers of small miscalculations spinning out of control, the lack of a network of communications and a bigger pipeline between the two countries to provide stability.

"This is going to take a long time," he said. "These are some deep scars that are being inflicted on each other."

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Associated Press writer Shino Yuasa in Tokyo contributed to this report.