Whither Japan Inc.? : Business as usual is no more. Instead, every manager must devise ways to prosper in a harsh environment.

When Toyota Motor Corp. went outside the firm’s founding Toyoda family this summer to tap 62-year-old executive Hiroshi Okuda as its next president, the move reflected far more than uncertainty at Japan’s leading industrial firm.

It signaled the end of business-as-usual in postwar Japan.

Toyota, arguably the world’s best auto maker, is an icon, a firm so successful it could be considered Japan’s flagship company. Long a cozy place run by the Toyoda clan, which founded it in 1894 as a maker of wooden spinning machines, Toyota helped write Japan’s success story and made its paternalism toward workers part of the national signature.

But with Japan mired in its fourth year of near-zero growth, Okuda’s appointment heralds a new stage in the country’s economic development--one requiring that corporations prosper even in a harsh environment. It is a task facing every chief executive in Japan, one that forces them to muffle an expansionary mind-set half a century in the making.

Toyota’s next moves will include domestic retrenchment, perhaps layoffs. That there will be cost-cutting, Okuda said, “goes without saying.”

This toughness reflects a belief by Japan’s industrial elite that, despite recent good news about the yen and improved profitability among corporations, the country’s economy faces many more months of virtually zero growth and worsening unemployment. According to a new Bank of Japan survey of business sentiment, this has deepened pessimism among decision makers--an ominous sign for investment.

The Japanese economy seems caught in what is called an ashibumi jotai --a condition of stomping one’s feet without really going anywhere. Banks remain burdened by massive non-performing loans. Land prices, already at half their level of the late-1980s “bubble era,” threaten to fall yet further. The yen, while recently on a weakening trend, showed a capacity this spring to rise to levels that brought exporters excruciating pain.

Indeed, whereas the United States has already been through a difficult restructuring, a similar adjustment driven by global influences such as new technologies and freer trade is just beginning in Japan. Okuda’s appointment--and the nation’s pullback in general--are part of that process.

“As economic stagnation continues and structural reforms fail to move forward, a feeling of crisis about the future of the Japanese economy is rising among corporate executives,” the Japan Federation of Economic Organizations declared last week. “Without urgent measures to stimulate the economy, companies cannot avoid further employment adjustments.”

Whatever happens, Japan’s unemployment rate, officially measured at 3.2%, seems destined to grow. Although still low compared to the United States or Europe, unemployment already is at its highest level in more than 40 years--and the figure would exceed 5% if calculated by U.S. definitions.

All over Japan, housewives worry that their husbands might lose their jobs. That worry, more than actual job losses, chills the spending that might spur a consumption-led recovery. A yen that is still strong by historical standards--even if not as strong as a few months ago--continues to hold back prospects for export-led growth. Real estate deflation adds to business woes.

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Yet the outlook is not entirely gloomy. Despite the business federation’s worries, its chairman, Shoichiro Toyoda, who also is Toyota’s chairman, said recent yen weakening and recovery of stock prices mean “we see a bit of light.” The Japanese economy may not be growing, but it is not shrinking either.

And as the improving profitability of auto and other retrenching companies suggests, no one should be too surprised if, a few years down the road, Japan comes roaring back.

“The top priority of corporate Japan is to be profitable at 75 yen to the dollar by the year 2000,” said Jesper Koll, head of economics and market research at J.P. Morgan Securities Asia Ltd. “That continues to be the objective here. The [recent] currency weakening, while greeted with relief, is seen as something that buys time.”

The weaker yen, which traded at 104.07 yen to the dollar in New York on Friday, should bring a significant boost for exports, which are more competitive and profitable when the yen is weaker. The dollar is now up 30.5% against the yen since April 19, when the dollar hit a post-World War II low of 79.75 yen.

“Since the strong yen is one of the major reasons behind the weakening of the Japanese economy, if this is removed it will help the Japanese economy very much,” said Kunio Miyamoto, chief economist at the Sumitomo Life Research Institute.

The recently improved prospects for exports are credited for a surge in Tokyo stock prices. The 225-issue Nikkei index closed last week at 18,758.55, up 4,273.14 points, or 29%, from its July 3 close, which approached a three-year low.

The Nikkei’s surge was driven by foreign investors betting on Japan. During August, Japanese institutional investors sold off $13 billion while foreigners bought a net $10 billion in shares.

Japan’s economy now is “under the crosscurrent of bright and dismal factors,” said Vice Finance Minister Kyosuke Shinozawa, with prospects “markedly bright” for corporate earnings but falling industrial output since April “a very serious matter.”

Most analysts say that so long as the yen does not quickly strengthen again, economic growth next year is likely to show a slight rise. Foreign analysts in Tokyo generally predict growth of less than 1% this year, followed by growth between 1% and 2.5% next year.

Improvement in corporate profits should be more dramatic.

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A late-August survey by Japan’s leading financial daily, Nikkei Shimbun, found that firms predicted an average profit increase of 14.2% in the current fiscal year. Profit growth would come almost entirely from cost cutting, however, with sales expected to rise only 0.5%.

In a fresh attempt to kick the economy onto a firm recovery path, a government pump-priming “supplementary budget” package expected to identify programs valued at more than $100 billion--of which a third to a half would be fiscally stimulative new spending--is due to be released Wednesday.

But analysts say still more aggressive action is needed, such as major tax law revisions and use of billions of dollars in taxpayer funds to resolve the banking system’s problems. Many people believe, however, that the current three-party coalition government cannot easily agree on such steps and that many problems will not be seriously tackled until there are fresh general elections and a change of leadership--something that could come early next year.

What might happen with a change of government is hard to predict. But for the near future, this is the outlook for some key sectors of the economy:

Banking

Panicky runs by depositors on two failing credit unions this summer prompted initial steps toward restructuring Japan’s troubled financial system, which the Finance Ministry estimates is burdened by about $500 billion in non-performing loans.

In closing Osaka-based Kizu Credit Union and announcing that Kobe-based Hyogo Bank will be dissolved, authorities provided a rough model for how future failures may be handled. The pattern would be that depositors are protected, stockholders would lose their investment, big banks would be pressured by the Finance Ministry to help out, and taxpayers would pick up costs that cannot be covered elsewhere.

While government action in the Kizu and Hyogo bailouts was seen as a step forward, final details remain to be worked out, and no one is sure exactly how future cases would be handled. Many analysts express frustration at government delays in coming more firmly to grips with the problem.

“Most of all we need a framework--a plan of action,” said Seiichiro Saito, professor of economics at Rikkyo University. “We need a clear policy about how we will proceed from now to solve this problem. We have lots of garbage in the form of these bad loans, and if we don’t throw it out, it’s going to get smelly! The crux of the problem is that we need to get rid of the weak banks and give a boost to the healthy banks.”

The collapse of land prices lies at the heart of the bad-loan crisis, because banks made loans backed by land that is now worth less than the amounts borrowed.

Most of the problem loans are held by large banks that are expected to gradually use profits to write them off. Little progress has been made in this so far. But many big banks are pulling in record profits this year, and a recent cut by the Bank of Japan to 0.5% in the rate at which it lends money to banks should help maintain this trend.

Within Japan, worries about the banking problem have largely focused on smaller credit unions and housing finance companies. Many of these troubled institutions are unlikely to survive.

Real Estate

With land prices generally down about 50% from their “bubble era” peak, the big issue for the real estate industry is whether prices are now close to bottoming out. The evidence is not encouraging.

It was a bad sign when the land under the fire-gutted shell of the Hotel New Japan, the most valuable piece of Japanese real estate ever sent to a foreclosure auction, recently went up for sale at 80% off the site’s late-1980s peak value.

That meant a “savings” of $2.4 billion from what the central Tokyo property, boarded up since a 1982 fire, would have cost six years ago. Yet not a single bidder came forward.

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“If you can’t sell that property, then you can’t sell anything,” grumbled Hiroshi Ijiri, manager of the plush Mikimoto Akasaka jewelry store, just down the street from the 14-story eyesore. “People are afraid if they develop the land, they won’t be able to rent it. I think it will be impossible to sell that property for the next five years.”

Housing starts so far this year are down 8.4% compared to last year, when growth in housing construction boosted hopes for a consumption-led recovery. A strong housing market, with its spinoff effects of new homeowners’ buying appliances, furniture and other items, appears unlikely until land prices have clearly bottomed out.

Hopes for recovery in construction depend on greatly increased public works spending, which could be launched with the package to be announced Wednesday.

Autos

In a downscaling of earlier forecasts, Japanese companies now project total domestic production this year at 10.2 million vehicles, compared to 10.6 million last year and 11.2 million in 1993.

Yet cost cutting at home and expansion overseas should bring sharply higher profits even as domestic production sags. In an August Nikkei Shimbun survey, major automobile and auto-parts firms predicted an average 65% jump in profits during the current fiscal year, which ends March 31, 1996. Nissan Motor Co., which lost money the previous three years, predicts about $100 million in profits this year.

Toyota still considers the yen overvalued and will continue to shift production overseas, Toyota spokesman Naoto Fuse said. Last week, the company confirmed plans to build a fourth North American assembly plant. Auto companies have been making such shifts mainly to reduce trade frictions, he added, not because of the high yen.

Declining domestic auto production also hurts related industries. Japanese steelmakers, which sell about a third of their production to auto makers, have been hard hit by falling demand at home and tougher competition abroad.

But thanks to rigorous cost-cutting, including elimination of thousands of jobs, all five of Japan’s top steel companies said they will post profits for the first half of this fiscal year. This marks the first half-year period since 1992 that all five will have been profitable.

Electronics

Semiconductor and personal computer manufacturers are enjoying strong profit growth, thanks to surging global demand, while firms specializing in audiovisual equipment and household appliances face lackluster performances.

“We are the top seller of semiconductors in Japan, and semiconductors are doing very, very well, not just here but abroad,” said NEC spokesman Mark Pearce. “But we were feeling the strong yen. The yen, by weakening, can only help us.” For each yen of yen depreciation, NEC’s profit rises by about $20 million, or 2%, Pearce said.

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Profits at the five leading semiconductor makers--Hitachi Ltd., Fujitsu Ltd., Mitsubishi Electric Corp., NEC Corp. and Toshiba Corp.--are expected to surge an average of at least 23% this fiscal year.

One reason is that sales of personal computers in Japan are expected to leap by half, to 5 million units. Sales have boomed partly as a result of the belated 1993 introduction of a Japanese version of Microsoft Corp.’s Windows 3.1, which made personal computers easier to use. A Japanese version of Windows 95, due to hit the market in November, should boost personal computer sales further.

In a recent Nikkei Shimbun survey, the electronics sector as a whole predicted a 20% jump in profits for the current fiscal year.

For Sony Corp., with 70% of its sales overseas, a weaker yen “obviously . . . helps us,” spokeswoman Mika Ishida said. “But this whole situation is absurd. Last year when the yen [rose beyond] 100 yen to the dollar, everyone panicked and said, ‘Oh no, what are you going to do?’ Now one year later, it has moved to the same place, and everyone is saying, ‘Oh, you must be so happy now that the yen is so weak!’ ”

Sony’s goal is to balance its yen-based costs and yen-based income “so that we can do well whether it is 100 yen to the dollar or 78 yen to the dollar,” Ishida said.

Retailing

The expansion of large retailers is squeezing Japan’s numerous mom-and-pop stores, yet even as big stores become more dominant, their sales are slipping.

Sales at 2,820 large retailers dropped 2.7% in July, according to a survey by the Ministry of International Trade and Industry, continuing a decline that began last winter. Household appliances and furniture were among the items off most sharply.

In this environment, big stores are also being hit by restructuring. In August, Seiyu Ltd., which operates about 200 supermarkets with food, clothing and household items, announced that 1,574 people above the age of 35, or 15% of its full-time work force, had agreed to retire early.

In another sign of change in Japan, Seiyu had earlier said it was switching to a merit-based pay system, abandoning the Japanese tradition of pay raises based mainly on seniority. That meant many employees could never expect the relatively high wages that used to come automatically to those in their late 40s or early 50s.

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Hilary MacGregor of The Times’ Tokyo bureau contributed to this report.

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Tracking Japan’s Troubled Economy

The yen’s rise and fall against the dollar has swung Japan’s Nikkei stock market index from bear to bull as the weakening Japanese currency heralds better days ahead for the nation’s export machine. But real estate is continuing to weaken, the banking system is groaning under the weight of bad loans, and unemployment is cutting into consumer spending.

The Dollar in Yen

Monthly closes, except latest:

Friday close: 104.7

The Nikkei 225 index

Monthly closes, except latest:

Thursday closes: 18,758.55

Auto production

In millions of cars

Large store retail sales

In billions of yen

Housing starts

In millions of units