Rival auto makers Toyota and Honda recently announced large recalls, amid plunging sales for both companies. Reuters

Japanese car sales nosedived in China during September, and the slump threatens to stall their momentum in the world's largest auto market and weigh on their full-year forecasts.

All three of Japan’s biggest automakers -- Toyota Motor Corp. (TYO: 7203), Nissan Motor Co. (TYO: 7201) and Honda Motor Co. (TYO: 7267) -- said sales of new vehicles in China plummeted last month after consumers shunned Japanese cars amid a territorial dispute over a set of islands between Asia’s two largest economies.

Toyota, the world's largest carmaker by sales in the first half, said it had sold 44,100 vehicles in China last month, down 49 percent from the same month last year and 41 percent from August. For the first nine months of the year, Japan's top automaker said it sold 640,200 vehicles, up 4.6 percent. But Toyota had expected to sell a million vehicles in China this year. As the Chinese market accounts for about 10 percent of Toyota's global sales, the recent decline would be a significant blow.

Nissan, Japan's second-largest automaker by sales, said its sales in China fell 35 percent in September from the previous year, to 76,066 vehicles, and by 20 percent compared with August.

The drop in sales was the biggest on record for Toyota and Nissan.

Honda reported a 41 percent decline to 33,931 vehicles in September from 57,024 in the same month last year. That was also down 41 percent from 57,003 vehicles in August, when the carmaker posted a 15 percent increase.

Of the big three, Nissan is the most exposed, with 26 percent of its global car sales in China, followed by Honda with 20 percent.

German brands and Korean brands together picked up 2.3 percentage points of market share in August as Japanese brands keep dropping off, official data show. Market share of Japanese brands fell to 21.2 percent at the end of August, from 21.6 percent in the same year-ago period.

Other Japanese automakers also saw sales dive in China last month. Suzuki Motor Corp. (TYO: 7269) said Tuesday it sold 16,020 vehicles in China in September, down 43 percent from a year earlier.

Last week, Mazda Motor Corp. (TYO: 7261) and Mitsubishi Motors Corp. (TYO: 7211) both reported declines in Chinese sales last month.

Japanese auto exports to China could be down by 70 percent during the October-December period, according to a JPMorgan study released Tuesday. Moreover, the territorial dispute over the group of islands -- known as Senkaku in Japanese and Diaoyu in Chinese -- may shave 0.8 percentage points off Japan’s gross domestic product growth for the fourth quarter, causing the Japanese economy to contract.

Data released Tuesday showed that Japan’s exports fell 5.8 percent in August from a year earlier, the third-consecutive monthly fall, with shipments to China dropping 9.9 percent. Tensions with China are threatening the $340 billion trading relationship between the two countries and may lower Japan’s current-account surplus in September.

Japan's top three automakers have decided to halve their production levels in China, the Nikkei reported on Monday. If the production cut continues for a month, each of the three manufacturers is likely to suffer a reduction of 30,000 units to 40,000 units, according to the Nikkei.

Toyota Motor Corp.’s (NYSE: TM) American Depositary Receipts fell $1.11 cents to $76.23 in Tuesday trading.