It is an interesting idea (if perhaps hard to pull of in practice), because I could see it leading to either more peace or more war. Of the two, I think more peace is the more likely outcome, but either is possible.
Let's say that the Mukden Incident happens as OTL, but the IJA meets heavy resistance and takes serious casualties. (This by itself would require a whole raft of PoDs, but I will ignore it for now as it is outside the scope of this discussion). That alone changes everything. The Wakatsuki government was shocked by the Kantogun acting independently and blantantly disregarding their orders to keep the incident local--they did the exact opposite, acting up and down the South Manchurian Railroad. Wakatsuki himself managed to avoid sending any reinforcements from Japan for some time, but eventually events forced his hand. The attack was enormously successful, with the IJA conquering a huge area quickly and with minimal deaths on their side. In the Great Depression, much of the Japanede public was eager for good news, and many people were, if not in favor of the fighting, pleased by the victories. It is noteworthy that all the major newspapers, even the more left-leaning ones, quickly posted favorable accounts of the fighting. This had not always been the case, say, during the Siberian Expedition. So, what happens if the fighting is tough, and no immediate victories are in sight? In that case, I think everything is different.
PM Wakatsuki does not face, or does not feel himself to face, immense public support for the fighting, and does not feel himself bound to send massive reinforcements. That means that the Kantogun is stuck with what they already have in Manchuria, plus whatever they can shake loose from the Chosengun (although the Chosengun is more apt to listen to Tokyo, especially in a case were the fighting is not going well). This necessarily limits the scale of the fighting. Further, here Wakatsuki has more leves of power to use. If the war is not immediately successful and popular, I am sure at least one major newspaper will choose to tactfully support Wakatsuki's government. If they are really brave, they might tell what they knew about the true nature of the bombing of the railroad. That would probably lead to some sort of public investigation, which may-just maybe-lead to suggestions for reforming the military somewhat. Even if it does not, it will damage the reputation of the army, which in the period between 1924 and 1931 was at something of a low ebb anyway. I expect the Privy Council will side with Wakatsuki in a case where hardline hotheads in the army seem to have lead the nation into a fight that is not going well, and if they seem to lack clear public support. In that case, Wakatsuki's government can survive, which likely means much better ties with the other great powers. If the Privy Council actually supports elected government officials, that itself is a big blow against the rise of the Militarists.
If all of the above happens, then I expect the fighting would remain quite small scale and limited. The peace would, I think, likely resemble the peace agreement following the First Whanghai Incident in 1932. China would likely agree to some humiliating terms about not stationing troops within x kilometers of the railroad, maybe not stationing troops above a certain number in the region as a whole (signed as well by whatever local warloads remain standing), Imperial Japan likely gets expanded rights to station troops, probably some language committing the local Chinese government to suppressing anti-Japanese activities, and of course some language reiterating existing Japanese economic rights in Manchuria. What we would not see, I think, is any attempt to establish Manchuria as an independent state.
As I said before, I think a lack of easy victories changes everything. It is easy to look at the support the Militarists got from a solid chunk of the Japanese public in 1931 and assume these sorts of ideas already had a large base of support outside the military. But I think that is looking at it the wrong way; I think to a large extent the successful and seemingly easy conquest to a large extent created that base of support. It was, after all, the depths of the Great Depression. The government seemed unable to do much, and anyway the previous few years had seen not a few corruption scandals. So when the IJA, or portions of it, pulled off the conquest of Manchuria, it was more than just a bit of good news. It was a decisive strike action in a society that seemed beset by problems. Even more to the point, as they went from victory to victory, inflicting disproportionate losses on forces that greatly outnumbered them, they seemed not just decisive but actually competent. Japan had been attacked, but the brash new breed in the army was fighting back quickly and well, despite whwhat corrupt cowards in Tokyo thought. (Keep in mind, this is not majority opinion, but merely what a supporter might have said). But all of that rests on quick and easy victories. Imagine instead a slogging fight, with no clear result. Imagine one or more newspaper printprints the truth about what happened, secure in the knowledge that the government will support them. Now, instead of decisive, effective patriots, it is all too easy to paint the leaders of this action was corrupt schemers, as bumblers who lied to get into a fight they are too stupid to quickly win. It is quite a different image. I also think it changes the calculus of how the Militarists themselves will act, how brave they will be, if they have less public support. How independently they would act was still sort of up in the air at this point. As I said before, the Kantogun blantantly ignored orders not to expand the fighting at the very start of the incident. And yet, later when they planned an offensive into southern Manchuria and the aarmy minister under Wakatsuki ordered them to cancel it in order to create a buffer zone between Manchuria and China proper in advance of proposed peace talks, they obeyed nd halted. That phase of operations only went forward after the Wakatsuki government fell. So it is possible that a lack of public support would cause even a lot of thetrue believers in Manchuria to act differently .
All in all, I think this could lead to a scenario in which 1928 or 1932 style conflicts occur between Chinese and Japanese forces, but total war is avoided. Would be interesting to flesh that TL out, I think.
Anyway, those are my initial rambling thoughts. My phone is almost dead, but if I hve time later, I will flesh out my idea of an earlier war scenario.