Japan says boat row should not hurt Taiwan ties

TOKYO (Reuters) - Japan said on Friday it wanted to avoid damaging relations after Taiwan protested against the holding of a fishing boat captain whose vessel sank following a collision with the Japanese coastguard in disputed waters.

The coastguard took all 16 people aboard the Taiwan boat onto its own vessel after the sinking. Fifteen were quickly released, but the captain was held for questioning about the incident, which took place in the early hours of Tuesday off a group of tiny islands 2,000 km (1,200 miles) southwest of Tokyo.

Japan released the captain on Friday and he would return to Taiwan within the day, Taiwan's foreign ministry said.

Taiwan's president issued an official protest on Thursday, the same day demonstrators converged on the de facto Japanese embassy, burning flags and demanding Japan release the captain, compensate the vessel's owner and apologize for the incident.

"This matter should be dealt with in such a way that does not damage the healthy development of ties with Taiwan," a Japanese foreign ministry spokesman said.

The islands are controlled by Japan, but also claimed by China and Taiwan. Relations between Japan and Taiwan are generally good, although Japan formally recognizes China and not Taiwan.

The disputed islands are known as the Senkaku isles in Japan, Diaoyu in Chinese and Tiaoyutai in Taiwan. They are thought to lie near undersea oil and gas reserves as well as boasting rich fishing grounds.

(Reporting by Isabel Reynolds and Linda Sieg in Tokyo and Ralph Jennings in Taipei; Editing by Alex Richardson)