China found a good "dodge" by suspending the East Sea talk as a response to the recent Diaoyu incident. However, even after the release of the boat and the 14 crew members the captain is still detained. It looks very unlikely either side could find itself a good reason to back off.
Still, there is one way for a face-saving solution for both China and Japan. But the window of opportunity is very narrow. They need to make such discussion and decision within the next 12 hours or so.
Japan needs an excuse to release the captain of the Chinese fishing boat. The excuse will be a humanitarian reason. The captain wants to attend the funeral of his grandmother tomorrow, September 15th. Japan should release him on a bail -- with a small amount commensurate to the income of a Chinese fisherman. Provided the amount of the bail is reasonably low, Japan will be in a position to shift the blame to the Chinese side if this is refused.
If the captain does not report back and forfeit the bail, Japan can continue to keep the file open and save face. This would provide China of what it wants, and Japan would also avoid escalating the dispute by having to proceed with the prosecution after the 10 day detention.
Now that the DPJ election is over and Kan emerged with a clean victory. He is in a position to act. As a good will, China should reciprocate by resuming the East Sea talk.
Let's watch if the 2 nations are mature enough to make such moves. Again, the window of opportunity is narrow. The funeral will be over by tomorrow though I believe the exact hour could be moved to the afternoon or even late evening. If, instead, Japan will release the captain on 17th (10 day detention) without a resolution from the court, she would need some rationale which is probably hard to find. On the other hand, it is not practical to keep on holding to the captain.
September 18th will be a sensitive date, it marks the anniversary of Mukden Incident in 1931, when Japan annexed Inner Manchuria. No one wants to see what happened in 2005 repeat. Japan is not applying for the permanent seat of UNSC this time, Kan is a much more China-friendly leader than Koizumi, and there is much more to lose economically for both than it was five years ago.