Although the word "subprime" may have been understood only by a few industry insiders a few months ago, it is certainly entering the global lexicon with some force these days. Governments around the world have been deploring the state of their economies, usually invoking the dreaded problem as a key factor.

In Japan, recent trends toward isolationism — even xenophobia — are adding a new dimension to the term.

By raising barriers to foreign investment and impeding the flow of foreign nationals, Japan, as a nation, is at risk of becoming a "subprime state."

Japan's global position is becoming increasingly alarming. Even the minister of economic and fiscal policy, Hiroko Ota, told the Diet in January that Japan is no longer a "first class" economy and that she had a "sense of crisis" concerning its future. Strong words indeed, and all the more so coming as they do from the halls of power.

But Ota is not alone in her pessimism over the current state of affairs. In 2007, the Tokyo Stock Exchange was ranked 53rd out of 54 exchanges worldwide in terms of annual returns, according to data from I-Net Bridge.

For a city aiming to present itself as a financial hub of Asia, this is a sub-par performance, especially when compared with the Shanghai or Hong Kong markets, which are ranked No. 1 and No. 3, respectively.

Or perhaps ask the people at Steel Partners, the activist fund that unsuccessfully tried to take over Bull-Dog Sauce Co. The Japanese Supreme Court ruled against the United States investment fund and upheld the original verdict, which labeled the fund an "abusive acquirer."

Opposition to hostile takeover attempts that originate off-shore is nothing unusual in Europe, or even in the U.S., but it was the blunt phrase coined by Japan's highest legal institution that shocked the foreign business community.

For many observers — both Japanese and foreign — the overwhelming lesson to be learned from this case was that external capital is no longer welcome in Japan.

This trend against foreign capital has continued in the early months of 2008, with more and more Japanese firms engaging in cross-shareholding as a pre-emptive measure against would-be takeover attempts.

Most recently, Sumitomo Metal and Sumitomo Corp. announced that they were increasing their cross-shareholdings, while Nippon Steel increased its share in Sumitomo Metal at the end of last year. Other industries are seeing similar actions.

The Nikkei business daily recently ran an article describing how this process of cross-shareholding eventually results in lower share prices for all parties concerned, but the practice seems to continue in Japan without much regard for the market place.

Another example of the trend toward economic isolation is the debate concerning foreign investment in Japan's airports. The transport ministry attempted to present legislation that would prevent foreign entities from taking control of any of Japan's airports, on the grounds it would present a security risk in times of emergency. Although the ministry backed down from the attempt in late February, it is nevertheless indicative of certain tendencies in the bureaucracy.

But these isolationist discussions have not been limited to airport investment; there are also steps that affect the people who move through them, in particular, foreign nationals. Not only are foreign residents required to pay for their re-entry status every three years (a practice unique among industrial nations, according to the European Business Council, which recommended abolishing this system in their 2007 white book), but since November of last year, all foreigners — visitors and residents alike — must also submit fingerprints and digital photos.

In the future, long-term residents may also face language testing to qualify for visas.

It is hard to imagine another world-leading nation engaging in such regressive and exclusionary behavior. Certainly, from the European perspective, all of these movements represent a truly deplorable inclination for a country from which more has been expected.

In contrast to the increasing threat of protectionism and isolation in Japan, one of the defining aspects of the European Union is its commitment to the free movement of capital and labor among its member nations.

But Japan does not have the benefit of belonging to a pan-national group like the EU. And although discussions and negotiations of various free-trade agreements hold out the promise of future integrations, it seems a very long way off indeed before anything approaching an EU-style community can take root here.

To the contrary, the current trend of exclusion and isolation is only suggesting that Japan is closing itself off from such an opportunity. It is all the more regrettable, as it is done without any real public debate or discussion, apart from concerned editorials in the Nikkei.

To put it more strongly, Japan cannot afford to restrict itself in this manner for much longer, without putting its own future at risk, both economically and socially. In today's world, there can only be a word for this kind of behavior: subprime.

Jochen Legewie is president of German communications consultancy CNC Japan K.K.