Have you been to Japan? There are many mountains and hills. A lot of the flat land where people live looks like it is artificial land reclaimed from rivers, bays and the ocean, just like that American said.
So no Japan is not an island floating on the water. It won't sink into the ocean completely. However it may get smaller because of sea level rises and geological processes. It will get bigger too.
When vibrations caused by an earthquake ocure the water in the soil moves to the surface, it is like when you vibrate concrete that as just been poured.
Fraction Liquefaction - one of my work colleagues forwarded an email sent to her from her friends in Christchurch - the following clip was attached - I thought it was pretty cool...good tune, clever lyrics.