It's a history of violence, bloodshed, and genocide, which extends all the way into the 20th century when Japan invaded China and Korea and killed hundreds of thousands of people (see the Rape of Nanking). The Chinese aren't particularly forgiving of those acts, while the Japanese are reluctant to acknowledge the war crimes committed by their imperial armies both before and during World War II.
The current dispute reaches back through history, but it also centers on modern needs for mineral and oil and gas resources believed to be located in the waters off the islands.
While Japan claims the islands as its own, and dates that back to the turn of the 20th Century, there are Japanese archives that indicate that the Meiji government recognized Chinese ownership of the islands. Intervening decades of conflict, occupation, and the end of WWII muddy the waters a bit, but the end of the war meant that Japan was required to surrender territories obtained from aggression and revert them to their pre-1895 legal status. That would have meant the islands would have reverted to Chinese control.
Japan recently purchased the islands from a private landowner, and that got China complaining about the actions. But China's not alone in claiming the islands as their own. Taiwan, which mainland China sees as its own rogue province and not an independent country, also claims the islands as its own and its fishing fleet has been scuffling with Japanese patrol boats in the waters off the islands.
Though the islands are uninhabited, they are near coveted fishing grounds and potentially large gas reserves, and their status touches on historical grievances in East Asia dating to Japan’s behavior during and before World War II.Considering that all the countries involved have significant economic ties to the others, all should have reasons to see the dispute simmer down and end peacefully. However, the mineral and fishing resources are too good to pass up, and that's why everyone's disputing the ownership. There have been anti-Japanese riots in China, where Japanese-owned factories have shut down because of the violence. It's a volatile situation, and it's one that could get the United States involved - even if the US is trying to get things to settle down.
Taiwan’s government generally maintains friendly relations with Japan but activists there, as in mainland China and Hong Kong, have made their voices heard in the brewing dispute over the islands.
The Japanese public broadcaster, NHK, broadcast footage that showed a Japanese Coast Guard vessel blasting water at a Taiwanese fishing boat. Another Taiwanese boat tried to spray water back.
The Coast Guard said more than 40 Taiwanese fishing boats and eight patrol craft briefly approached the disputed islands. The boats had since left the waters, the coast guard said.
Tensions between Japan and China erupted earlier this year when the governor of Tokyo, a well-known nationalist, angered Chinese activists by announcing that he wanted to buy three of the disputed islands from their owner, a Japanese citizen. He said he believed that Japan’s central government was not doing enough to defend them.
The uproar over the governor’s threat prompted the central government to buy the islands instead — a move that Japanese officials stressed was to prevent them from falling into more provocative hands. But in China, the move was seen as an effort to assert Japanese control, setting off angry demonstrations. Some of the protesters attacked Japanese businesses.
In an effort to calm the dispute, Japan’s vice foreign minister, Chikao Kawai, met Tuesday in Beijing with his Chinese counterpart, Zhang Zhijun. The Chinese Foreign Ministry said the two sides had talked about ways to handle the dispute but indicated that no substantive progress had been made.
The dispute has also meant China's sent its first aircraft carrier into the field. The reflagged ex-Varyag is seen as largely being a training ship to accustom the Chinese navy to potentially building its own native-built carriers, but it also indicates that the Chinese are willing to put military resources towards defending its territorial claims.
It should be further noted that while China has sent the aircraft carrier into service, it does so without any aircraft capable of landing or taking off from the carrier, and it isn't likely to have that capability for several years. Of much more relevance to the current situation is the fact that the Chinese military has invested in developing long range cruise missiles capable of hitting naval targets - which could potentially include US Navy ships, as well as expanding its submarine fleet.