"The digital camera was invented in Japan," said Shyam Nagrani, an analyst at iSuppli. "They jumped on it early."

Japan also has a dominant position in manufacturing chips and other parts for these cameras. Sony makes roughly 40 percent of the CCD, or charge-coupled device, sensors for capturing images, followed by Matsushita, Toshiba and Sharp. The flash memory cards that go into these devices run on NAND technologies. Toshiba is the second-largest NAND producer, but as the inventor of NAND, also gets royalties from other manufacturers.

Next battle in camera phones
Competition, however, is intensifying. Camera cell phones--which already come with telescopic zoom lenses in Korea--are hollowing out the low end of the market, and silicon sensors made in the United States and elsewhere are growing in power and popularity. Although digital-camera revenue rose from $10 billion in 2002 and will likely peak at more than $14 billion this year, iSuppli predicts that sales will then sink to about $12 billion in 2006.

Sony, which has proved to be one of the more successful companies at selling camera phones, has responded by producing silicon sensors of its own. Common standards for new 3G models will also let Japanese manufacturers sell phones outside its country.

The need to cut costs has created some surprising mergers, joint ventures and technology development consolidation. Some examples:

Elpida Memory is composed of DRAM units from NEC and Hitachi.

Renesas Technology is a combination of processor units from Hitachi and Mitsubishi.

Spansion is made up of flash memory units from Fujitsu and Advanced Micro Devices, and is managed by AMD.

Cell processors are next-generation chips being developed jointly by IBM, Sony and Toshiba.

Micron Technology's DRAM production expanded with the purchase of Toshiba memory operations at a time when rivals Fujitsu and Mitsubishi were exiting the market.

Similar dynamics have already run their course in the market for DVD players, which were commoditized early on by companies such as Apex. Japanese manufacturers have tried to trump competitors with more sophisticated DVD recorders, including those that can play Blu-ray discs, an emerging disc technology that holds far more data. But sales have been relatively small.

"The question is going to be, how long do you have to ride the price down?" said Stephen Baker, an analyst at The NPD Group.

Even if companies are successful, life won't necessarily be easy. Consider Matsushita, the parent company of Panasonic and JVC.

The company began major changes in 2001, consolidating divisions, spinning off companies and streamlining product development and logistics. A net loss of $187 million in fiscal 2003, which ended in March 2003, turned into a $405 million profit in fiscal 2004, and profits have continued to rise. Overall revenue, however, has barely budged, growing only 1 percent to $71.9 billion in fiscal 2004, well below the $87 billion revenue goal set in 2001 for that year.

Compare that to IBM, one of the few U.S. high-tech companies with similar revenues and numbers of employees--between 200,000 and 300,000. Big Blue saw revenues of $89.1 billion and a net income of $7.9 billion in 2003. Put another way, IBM's net profits were more than 18 times higher off a similar revenue base in the same basic period.

$900 million for nanotechnology
If the country's economic turnaround lasts, many Japanese companies hope to grow revenues in a different direction--specifically, in emerging technologies. For instance, Japan's government will invest roughly $900 million in nanotechnology research this year, as much as all of Europe and nearly as much as the United States, according to the National Science Foundation, though the economies (and populations) of the United States and Europe are substantially larger.

"We want to be on the front end of the commercialization of nanotechnology," said Jun'ichi Sone, general manager of NEC's Fundamental and Environmental Research Laboratories. NEC invented the breakthrough single-walled carbon nanotube and has begun to seek licensing revenues for its patents from companies that want to make or sell products based on them. Sumitomo has already signed a deal.

A history of energy conservation, prodded in part by tax breaks, is also paving the way for gains in the growing alternative-energy market.

Toyota, others tap alternative energy
Toyota and Honda jumped ahead of North American manufacturers in promoting hybrid cars and have reaped the benefits. In September, Toyota said it would double the U.S. allocation of Prius hybrids in 2005 to 100,000 units and increase monthly worldwide production next year from 10,000 units a month to 15,000. California Gov. Arnold Schwarzenegger is trying to woo Toyota to build a hybrid factory in his state.

Elsewhere on the environmental front, Panasonic will begin to sell hydrogen systems for heating homes. "Toyota, Canon, Panasonic...the companies that stuck to the importance of technology and the technology of making things are still strong," said Akira Yamanaka, corporate vice president of Fujitsu's server group.

What remains unknown is how far that strength will go in the economic turbulence of the new millennium. "The general trend line is pretty good. There is kind of a 'two steps forward, one step back' phenomenon," Thomas Lifson of consulting firm Lifson and Associates said.

Like many others, however, he finishes his thoughts with a poignant observation on a country obsessed with tradition: "Nobody talks like they have a job for life anymore."