Had Japan been willing to settle for Manchukuo/Manchuria as their only territorial demand, peace would have been established in the 30s. The USA couls live with that. Some commercial concessions probably could have been negotiated. The problem was Japan, led by the Kwantung Army and fanatics in Tokyo wanted nothing less than China to lie prostrate under the Japanese and Japan present a Diktat. Given the penchant for junior officers to assassinate anyone they felt was obstructing their righteous path (remember Yamamoto had to live aboard ship to avoid assassination), the odds of any "peace" party actually offering some sort of reasonable terms was nil. Furthermore, the Kwantung Army was only marginally under control from Tokyo, unless there was a major purge of the staff of the Kwantung Army, down to many company level officers, you can rest assured they would find a way to restart the war to restore their "honor".
The Japanese leadership basically believed that the difference in population and industrial power between Japan and the USA (and the UK and Commonwealth as well) would be negated by the "spirit" of the Japanese military and people, thus rendering the statistics - which even the army acknowledged were accurate - meaningless. While there were many senior officers, especially in the navy, and civilian leaders, who believed that getting in to a war with the USA was folly, they were marginalized.
It is worth noting that Japan never made a serious direct overture for talks to the USA, the "feelers" they put out, up to 1945, were indirect and obscure. Even in the summer of 1945 what the Japanese offered was basically a return to status quo antebellum (Pacific Islands other than Okinawa and Formosa could go) with Japan retaining most of its Empire, no occupation of Japan, any trials for "war crimes" were to be run by the Japanese, and so forth. Those who put forth even these peace feelers risked their lives doing so. even after the atomic bombs were dropped, a coup was attempted by army officers to seize the recording of the surrender acceptance before it could be broadcast and put the Emperor under "protective custody".
IMHO Japan coming to a peace settlement with China and thereby avoiding the Pacific War would require a POD that takes away the militarization of Japan in the teens and twenties, and the elevation of the pseudo-bushido code. Impossible, I suppose not, but absent an entire rework of Japanese politics and society you need ASBs to make the POD happen.