Sixteen years ago, corporate Japan went into economic hibernation. Now it's back.
From banking and real estate to telecommunications and automaking, the country is experiencing a broad recovery, best exemplified in the dramatic makeover of national champions such as Toyota Motor, Honda Motor and Nippon Steel, as well as financial powerhouses like Mitsubishi UFJ and top construction-machinery makers like Komatsu.
And while the Nikkei stock index has been essentially flat this year after a strong showing in 2005, many say it is only a matter of time before it takes off again.
"This is the most balanced economy growth we've seen in 15 years or 20 years," said Patrick Mohr of Nikko Citigroup. "As long as the U.S. is not going into a recession, Japan should be in very good shape."
The turnaround isn't limited to the big players that dominate the Forbes 40 Japan, our list of the country's largest companies. Japan's sprawling legion of niche manufacturers, which were once losing ground to low-cost Asian competitors in China, South Korea and Taiwan, are now experiencing an upswing.
Small companies like Fujimi, a maker of silicon wafer polishing materials, Strawberry Metals, which produces high-function hinges for mobile phones, THK, a machinery maker, and engine-measuring equipment producer Horiba have all seen dramatic growth.
This high level of specialization has prompted Deutsche Bank's Ryoji Musha to compare it to what Japanese farmers realized long ago in selling high-priced apples and importing low-cost bananas and oranges.
By migrating from mass-market production to high-tech and high-valued-added manufacturing where entry barriers are extremely high, he said, Japan has enjoyed near monopoly in segments such as car parts, precision equipment, electronics components, fine chemicals and ceramics, as well as fine metals, all of which bolster economic growth.
But corporate Japan has done more than just replace bananas with apples. It has reinvigorated itself through a raft of wrenching restructuring programs introduced in the early 1990s but which have intensified in recent years under the Koizumi administration.
By laying off surplus workers, cleaning up balance sheets and shedding unrelated businesses, Japan has done away with much of the "keiretsu" system -- the towering cross share-holding conglomerates responsible for its post-war
The transformation is most complete in domestic financial institutions, steelmakers and trading houses, all of which have reported robust earnings following a rash of drastic mergers and acquisitions.
This new crop of globally competitive exporters and recovering domestic giants are at the forefront of a boom that has led all Japanese-listed companies as a whole to report profit growth for five straight years, the longest growth expansion for at least 40 years.
Listed Japanese companies also reported other record-high figures this year, with operating margins at around 6% and returns on equity at 10%. And despite worries over a possible U.S. economic slowdown, which would slow Japan's export-driven economy, Japanese companies have increased capital expenditures for three years in a row.
Toyota Motor, more than any other company, epitomizes a resurgent Japan. It recently replaced Ford Motor as the No. 2 automaker in the U.S. and is poised to gain further traction despite a weak American auto market.
It has posted record high figures both on sales and on net profit for four straight years, most recently reporting a 13.4% annual rise to 21 trillion yen ($17.94 billion) in net revenue for the latest fiscal year, with net profit rising 17.2% year-over-year to 1.37 trillion yen.
Toyota's closest Japanese rival, Honda, also has reported record profit for its fifth straight year. So did the country's four largest steelmakers and its three largest oil distributors. The list goes on.
Not all big Japanese companies have done well. Consumer electronics makers such as Sony, NEC, Fujita and Hitachi, have yet to find their raison d'être amid intense competition in the global consumer electronics industry.
A recent bout of merger and acquisition activity, also at a record high, suggests there's plenty of room for further downsizing. Instead of diversifying away from their cores as they were in the go-go 1980s, newly rehabilitated Japanese companies are finding their value within their particular industries.
"Companies are much more cautious than in the past," said Kathy Matsui at Goldman Sachs Japan. "Mainly, they are looking at M&A opportunities in their core businesses, not in diversification."
They aren't the only ones being cautious. Many Japanese who have lived through several economic false starts in the past remain wary. Worker dislocation, years of social change and lingering fears of deflation have curbed consumer spending and delayed the economy from developing into a full-fledged boom.
But sooner or later, however, they'll catch up on an emerging new reality -- Japan's back.