...Ghibli have apparently denied that Toroto is death, but I don't think it's the kind of thing they'd be likely to admit - not going to do much for the sales of Toroto toys now is it?

My interpretation:

I'm not sure about the film being based on the Sayama incident, I think any connections are rather loose, but I do think there is a theme of death running along side this story. Their mother is clearly very ill, the house is described as haunted, the totoro first appear ghostly transparent, the cat bus and it's destination of "grave road" and the apparent lyric "those guests who ride are cheerful ghosts" as the children ride in it. I think that the children are closer to the spirit world because of their ill mum, the old house and because they are kids. Totoro may well be a spirit of both life and death, he's not the first in Ghibli and this doesn't make him scary. The cat bus may be a ferry to the other side. Perhaps if they stayed with the spirits they would be dead. But I'd like to think that they were just in between. Their mother will return home happy and well (as she does in the credits) and the children will not see Totoro again perhaps even forgetting him completely.

ghibli.livejournal.com/316492.html