As a Hong Kong people in China, I think it's a difficult situation for me to comment.
Nationalism is the trick that Chinese government has been playing before, when they are in need of shift the focus on its own problem. Their own problem now is the settlement/distribution of power among different interest groups within the communist party. And of course the military forces would take this opportunity to take a more aggressive approach onto diplomatic issues. The chance only happens every other five years so of course they would take their chance.
These islands are the pain in the neck (cannot think of better description) to PRC (currently mainland China) and ROC (or Taiwan or Formosa) and also Japanese government, but if you ask me US government is playing mind tricks to these three parties since 40 years ago.
I used to be very patriotic when this issue is brought up, but when I studied over and over I found it's just way too complicated for me to be that simple and naive.
This issue has been lingering over and over these 40 years since US government returns Okinawa or Ryukyu Islands back to Japanese government, and accidentally (or purposely) return Diaoyu Islands or Senkaku Islands (the trouble maker) as well.
The first group of people in protest are from ROC and their students in US, and people in formely British Hong Kong (back to PRC since 1997) since according to ROC, Diaoyu Islands are ROC's territory (it's actually closest to Taiwan) but hey when both ROC and Japan are US's allies, there's not much that ROC can do at that moment when they are in such inferiority (including them being expelled by UN and replaced by PRC). And even the current ROC president was a protester by then.
PRC is not that much interested by then as their major focus is to build diplomatic relationship with Japan and US since they are no longer brother of Soviet Union. They chose to keep silence on these islands and of course the infamous "Cultural Revolution" is still burning their own government, party and the people so not much people care these such tiny islands in the ocean.
The dead knot was there on and on and not sorted until recently.....
Governor of Tokyo is attempting to buy from the islands' owners and things start to heat up.
There was a small fishing boat from Hong Kong visiting the tiny islands (whatever you name them, Diaoyu Islands according to Chinese and Senkaku Islands according to Japanese) last month, and they were arrested by Japanese Police/Military so you know who is the real boss over there now.
I can't say much on point of view from Japan but of course for a country made of islands, it's always good to expand their territory. Maybe Aqua can help to explain more here.
About whether there will be a war or even WWIII, I don't really think so. Things may become worse or the protest could become more violent, people in PRC and Japan may go to more Nationalist rather than calm and peaceful, but war? Conflict could be a better word.
And I have to say US government is the mastermind behind all of this. To them PRC, ROC, Japan, Korea (they have their issues with Japan over another island in a less degree), Russia or even a tiny city of Hong Kong are all chesses on their hands for them to get involved to East Asian Politics. I would not want to get any blood shed due to a mind-boggling chess game.
