The breakdown of the keiretsu (interfirm network) system of crossshareholding and preferential trading among member corporations of a business group (Gerlach, 1992) has badly hurt the safety net of supporting the long-term growth strategy of Japanese firms and their ability to protect employees from downside market risks (Lincoln et al., 1996). Deregulation is another force for change. It has made Japanese markets more accessible to competitors, foreign as well as domestic. In heretofore protected industries ± like financial services, distribution and agriculture ± few firms are prepared for the onslaught of competition and uncertainty (Lincoln and Nakata, 1997). The aging population also has clear implications for corporate human resource practice. With an aging workforce, the permanent employment and seniority system burdens firms with rising numbers of higher-paid and less productive workers. Previously, these systems were more suitable to employers, since the steep seniority escalator resulted in less payment for the relatively young workforce and the permanent employment norm reduced the uncertainties and costs of high staff turnover. Finally, the transition to a service economy combined with socio-cultural and socio-economic changes has had a profound effect on Japan's employment institutions. Although leading-edge manufacturers are still competitive, their