TOKYO -- Western-style capitalism is coming, raising tensions and eyebrows, upsetting plans and a way of life.

Obviously, the home of Toyota and Sony is not a communist country (though Japanese and foreign analysts have often pointed out parallels). But it is not really a capitalist country either, in the entrepreneurial, freewheeling way of Western market economies.

As Japan searches for a path to take it into the next century, the challenges of building a modern market economy -- and the resulting anxiety -- are disconcertingly similar to those in the former communist world. In Japan almost as much as in Russia, there is a consensus that the old economic and political system was ill-suited for the future, and that society must move several steps in the direction of American-style capitalism, but that this will be as painful as it is inevitable.

Japan's economy is marked by a high degree of central planning, presided over by powerful bureaucrats confident they can allocate resources better than the free market. Business is highly regulated and often collusive. The economy is biased toward producers rather than consumers, resulting in first-class steel mills and third-class apartment buildings. And in many cities, the economy seems closer to that of a 16th-century village than that of a modern capitalist country.

The anti-capitalist side of Japan's economy is readily apparent in the back alleys of typical cities like Utsunomiya, a sprawling warren of vegetable shops and noodle restaurants at the foot of the great mountains of central Japan. Resistance to the rough and tumble of the market in places like this is simply a matter of good neighborliness.

Take longtime residents of Utsunomiya like Keiko Abe, 55, a woman with an oval face focused on a mouth that is always smiling or chatting. Mrs. Abe says she feels a strong sense of moral obligation -- what the Japanese call giri -- to buy from local shops, whatever the price.

"The elderly folks still try to buy from local shops, and the shop-owners buy from each other," Mrs. Abe said. "But young people don't feel that giri. They go wherever it's cheap."

These webs of giri in some ways reflect the very best of Japan, its civility and respect for others. But a fundamental question for Japan is whether it can move to a more market-oriented system without disrupting these bonds and the sense of community that for centuries have been at the root of Japanese society.

By international standards, Japanese society is exceptionally thoughtful and polite, enjoying some of the lowest crime rates in the industrialized world. But some people here wonder whether capitalism will lead to layoffs, inequality, crime and a society that values wealth more than cooperation and social responsibility.

The short answer, some experts suggest, is that it will. Japan so far has managed to create an industrial economy while preserving much of the civility and security typical of agrarian societies. But more labor mobility and freer markets, while creating greater economic opportunity and efficiency, may also continue to erode the traditional Japanese gentility.

For all of the apprehensions about the future, Japanese society is virtually unanimous on the need for change -- although there is debate about the pace. One of Japan's strengths over the last century has been its ability to see a cloud around any silver lining, observing risks early and reacting to them.

These days there is a remarkably gloomy consensus among Japanese that their country has lost its edge, that it has been outmaneuvered by more creative and entrepreneurial countries like the United States, that it will be challenged in the coming decades by the booming economies of Asia, and that unless Japan can restructure its best days are behind it.

Many executives in France and Germany are also trying to nurture entrepreneurs and reduce government presence in their economies, but the issues there are largely economic.

In Japan, they are economic but go much further: they also involve social values of egalitarianism, the creation of a consumer society with better housing and higher living standards, the effort to cultivate a two-party political system, the devolution of power to localities, and even a looser education system calculated to encourage more critical thinking.

"Japan is caught right now in a serious stalemate, and lots of people see it as virtually the end of the world," said Tadao Ando, a leading Japanese architect. "The rules that bind Japan are usually said to be about business, but the more important thing we should discuss is how these rules stifle the Japanese sense of freedom, the sense of our own possibilities."

The way the changes unfolding in Japan involve more than business is also apparent, in a different way, in the little gas station that Riki Tamura runs in Utsunomiya.

Car owners used to be dependable customers, forging a relationship with a service station that would repair their vehicles as well as fill their tanks, creating a bond that was nourished by extra attention and occasional freebies offered by the mechanics. But now customers do not want relationships; they just want cheap gas.

So a community has been replaced by a marketplace.

The petroleum industry was partly deregulated last year and self-service stations may be allowed soon as well. Price wars have broken out among filling stations, and many economists predict that about one-third of them will close over the next decade.

"Almost all gas stations are in the red right now, so I'm worried," Tamura said heavily as he stood in the office of his filling station, watching cars sail by on the road outside.

"Now the differences between the good stations and the bad stations have become clear," Tamura said. "When prices were deregulated, we lost the cradle that we'd been rocking in."

The average gas station in Japan employs more than three times as many people as the average American station, and sells less than half as much gas. The old system was a bit like a communist workplace, where jobs were for life and prices controlled. But that, too, is slowly changing.

Tamura said his gas station used to have five workers on a shift, but it is now down to four and may drop to three. Yet for all his anxieties about whether deregulation will cost him his job, Tamura notes that the filling station can benefit from the changes in the marketplace. He points proudly to a little shop that the gas station has opened so customers can buy a few products -- like rice.

In the past, the law generally allowed only rice shops to sell rice. But that rule was relaxed last year, and now anybody can sell it.

Tamura is hopeful that these rice sales will save his job, but down the road they are helping to destroy the business of Yozo Kaiga. Kaiga, a pudgy man of 66 with a few wisps of gray hair, sat forlornly in his rice shop, sipping hot water and waiting for customers who never came.

"My business has dropped 70 percent" since the law changed, Kaiga said dolefully. "I don't know how to survive."

Kaiga puzzles -- like many Japanese -- over what is best for his country. He worries about the impact restructuring will have on social values and on his business, but in the end he concludes that a market-oriented economy is inevitable and essential.

"I can't say I'm happy about it, but this is the trend of the times," he said, frowning nervously. "Regulation isn't the normal way. There should be competitive markets."

One of the changes under way in Japan that will have the broadest effect on the international economy is the effort to transform corporations into more dynamic and profit-oriented organizations. Japanese companies are not state-owned like the old Soviet corporate behemoths, but neither are they profit-maximizing concerns run for the interests of shareholders.

Instead, critics say, many large Japanese companies have been pretty much hijacked by managers and workers, who have often enjoyed lifetime employment and steady salary increases regardless of their performance.

"Ten years ago, or even today, many executives forget about shareholders," mused Yoshihiko Miyauchi, president of Orix Corp., a large leasing company, as he sat in his boardroom overlooking downtown Tokyo. "They care more about their customers, more about their vendors, more about their company's employees."

Yet these days Japanese executives are paying more attention to shareholders and profits, and Miyauchi has been ahead of this trend at Orix. Japanese companies have clearly made great progress in becoming more flexible and market-oriented over the last decade, but they are not as willing to restructure -- or to be as ruthless -- as American companies often are. Many Japanese companies have bloated labor forces that in economic terms should be pared substantially. But layoffs are still very rare, perhaps because giri, even if it is fading, still matters.

In Japanese eyes, the government needs reform as much as the economic world -- perhaps more so, because only after the political system is restructured will it make needed changes in the economy and society.

Government bureaucrats, for example, have long played a leading role in gumming up the market economy, preferring to allocate resources by directive rather than supply and demand. So one necessity, almost everybody agrees, is for stronger political leaders who will lead instead of following the "apparatchiks" of the bureaucracy.

One initiative to start far-reaching political change is a new electoral system introduced last year. The aim was to make elections more competitive and to help the cause of restructuring by making Parliament more attentive to public opinion.

It is too soon to judge the effect of the new system, but it did produce much narrower races. Most striking, fully one-third of electoral districts in the last election were won by tiny margins, fewer than 10,000 votes.

"That really scares us all," said former Prime Minister Kiichi Miyazawa. "We talked so much about reform in the election, that if we don't deliver on reform, then next time around we may lose."

Still, the governing Liberal Democratic Party is now proposing to change the system it has dominated for four decades, though it will be a struggle for the party to muster the necessary political will.

Daijiro Hashimoto, the governor of Kochi Prefecture and an ardent proponent of decentralization, doubts that Prime Minister Ryutaro Hashimoto can achieve his stated goals of ushering in far-reaching change any time soon -- an interesting statement because Hashimoto is the prime minister's younger brother.

"Even though my brother is calling for reform, many Liberal Democratic members are resisting," Hashimoto said. "So I think reform in the short term is difficult."

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