A Japan Airlines Boeing 747 plane taxis at Tokyo's Haneda Airport
Shares closed down more than 4% in Tokyo. The decline comes just two days after the carrier re-listed in the second-largest initial public offering (IPO) of the year.
The airline, in an e-mail, said Friday that it would temporarily reduce flights from Japan to the Chinese cities of Beijing and Shanghai next month.
Sze Hunn Yap, a spokeswoman at JAL, declined to say whether the cancellations were directly linked to the island dispute but did allow that the airline was "seeing irregular changes in travel demands."
Tensions have flared in recent days over a set of uninhabited islands claimed by Japan, China and Taiwan. Known as the Senkakus in Japan and the Diaoyu islands in China, the barren archipelago lies in popular fishing waters that are also believed to be rich in natural resources such as oil. Ownership would allow exclusive commercial rights to the seas surrounding the chain.
China is Japan's largest trading partner. Nearly 20% of Japanese exports last year were sold to mainland China, compared to 15.3% exported to the U.S., according to figures from the Japan External Trade Organization.
Earlier this week, ratings agency Fitch warned that the credit ratings of Japanese auto and technology manufacturers could come under pressure "if the clash between China and Japan over the Senkaku/Diaoyu islands escalates and is prolonged."
There are signs the dispute is already hurting Japanese companies. Protests roiled dozens of cities across China over the weekend, forcing the closure of Japanese businesses operating in China. Tensions seemed to have moderated somewhat by Friday, with some Japanese businesses re-starting operations in China.
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