In the final part of a series on Japan, Jamie Smyth reports on whether the world's second biggest economy is back on track after almost 15 years of stagnation

Ms Yukiko Osawa is getting used to working long hours as she struggles to gain a foothold on the corporate ladder in Japan.

The 28-year-old graduate, who speaks fluent English, began her career with an airline five years ago and thought nothing of putting in 14-hour shifts.

Long days are also a feature of her new job as a government official, although her wages remain stubbornly low for living in Tokyo.

Long shifts and moderate take-home pay have for years been standard practice for most Japanese graduates entering the workforce. Up to now these hardships have been balanced against the offer of a "job for life" from companies that have prided themselves on protecting employment as much as turning a profit. But this practice is vanishing fast.

"I am a contract worker now," says Ms Osawa, who broke with another tradition recently by moving into her own flat. "Full-time recruitment is quite limited in Japan and many people now work as temporary workers."

This shift away from lifetime employment toward more flexible work practices is a trend that policymakers highlight when they talk about the "new Japan".

Stung by 15 years of economic stagnation since the bubble burst with the collapse of the property and stock markets, there are signs that firms and the state are gradually changing their business culture.

Perhaps the most noticeable change in Tokyo since I returned to Ireland in 1998 after two years working in the Japanese capital is the increasing number of Haken, job agencies offering part-time and temporary positions.

The boom in part-time working masks the fact that finding a permanent and pensionable position or sei-shain in contemporary Japan is now much harder than before.

But the introduction of more flexible work practices is just one of a number of structural changes that commentators say are fuelling the country's strongest economic recovery in 15 years.

Deregulation, internationalisation, privatisation and transparency are all buzzwords being applied to Japan, which for much of the past decade has been criticised by the West for protectionism and a culture of secrecy.

Mr Seiichi Takarabe, a prominent economic commentator in Japan, blames an overly negative media for failing to recognise the changes taking place among Japanese firms over several years.

"While the majority of Japanese were talking about the uncertainty ahead, Toyota and Honda achieved record high profits for six consecutive years," says Mr Takarabe.

"Even firms from within the mature industries, so-called heavy industries, the iron and steel industry, shipbuilding and shipping, that had experienced a dramatic downturn in domestic demand, reported increased profits and sales one after another."

Economic statistics back up his more positive view of Japan.

For only the second time in the past 15 years, the ratings agency Moody's has upgraded the prospects of more Japanese companies than it has downgraded. So far in 2004, there have been 50 upgrades of ratings and only five downgrades, which represents a significantly better performance than in 2000 - the only other positive year since 1990.

Moody's says its run of corporate upgrades reflect a tidying up of company balance sheets and increasing profitability of firms.

Separate research undertaken by the Japanese economic think tank, Shinko Research Group, shows that the 813 firms listed on the Tokyo Stock Exchange's first section posted a 33.2 per cent increase in pre-tax profits during the first half of fiscal 2004. Sales also increased, although at a slower rate, suggesting firms are restructuring and cutting costs.

The improved corporate performance of firms over the past year has been matched by strong economic growth. In the final quarter of 2003 and the first quarter of 2004, the Japanese economy grew at its highest rate, about 7 per cent, in a decade.

This improved economic performance bodes well for the global economy, which has relied heavily on US growth in recent years leaving it extremely vulnerable to a slowdown in the United States.

However, a steep slowdown in gross domestic product (GDP)growth to just 0.1 per cent in the July to September quarter illustrates that Japan's predominantly export led economy remains vulnerable to external shocks.

"A dollar collapse would have a big impact on Japan," says Mr Eietsu Imamatsu, an economic commentator with the Mainichi Newspapers Group. "We are getting a bit concerned about the unilateral decline in the US dollar."

A declining dollar pushes up the price of Japanese goods in the US, the country's single biggest market for its exports. And there is real concern among Japan's financial leaders that the ballooning US budget deficit could lead to a run on the dollar and a corresponding fall in Japanese exports.

"We must watch such currency moves and the impact [ on the economy] very carefully," Bank of Japan governor Mr Toshihiko Fukui warned last week on publication of new figures showing growth had plateaued.

Exports remain a vital component of Japan's recovery because of continued relatively weak consumer spending culture and declining prices, says Mr Imamatsu of Mainichi Newspapers, who is predicting a mild recession to occur over the next year.

"After that it will depend on the further course of the US and Chinese economies as well as domestic demand," he adds.

Many economists believe persuading Japanese consumers to spend is the best way to ensure a sustained recovery. But this is easier said than done because of the ageing population in Japan.

"There is more confidence among consumers recently," says Mr Jun Tanaka, deputy general manager of the international division of Mitsubishi Heavy Industries. "But the problem is the percentage of old people are increasing and they don't spend much money as they retire."

Immigration from Asian countries will play a key role in creating the right conditions for the Japanese economy to grow, says Mr Tanaka, whose company is a major exporter to the Republic.

But in a recent policy shift, which holds the greatest potential to change the business culture, Prime Minister Koizumi made a controversial decision to privatise the Japanese post office, Japan Post.

Japan Post is a massive organisation, employing almost 400,000 staff and holds the accolade of being the world's biggest bank with savings and insurance deposits worth € 2,589 billion.

The State hopes that privatisation will unlock these funds for use in the private sector, thereby stimulating demand throughout the domestic economy.

Until now the funds have been used to invest in Government bonds and State projects, many of which reflected pork barrel politics rather than real economic need.

A political bunfight is playing out over the privatisation and booklets handed out in Japan Post's headquarters asking "For the satisfaction of our customers: Why privatisation?" signal that opposition could stymie reform.

But change is in the air. In a further sign of relaxing restrictions from next week, Japanese banks will be able to offer brokering services to their customers directly for the first time. This will follow the lifting of a ban, which prevents banks from taking orders directly to buy stocks or bonds from customers.

The bad loan problems which affected Japanese banks for much of the 1990s have also receded without a financial meltdown.

"We're not in such big danger now," says Mr Imamatsu. "But there is still more work to do and political change may be needed."