There has been a bit of discussion recently in the Japanese press about the use of the word gaijin, as a label for non-Japanese.
Gaijin, 外人 , literally 'outside person', is most usually translated as 'foreigner'. Having negative connotations perhaps, but not necessarily racist.
But the depth and subtle nasty power of the term can only be seen when you compare it with the more politically correct 外国人 , gaikokujin, 'outside country person'.
Gaikokujin is a legal term, referring to foreign nationals. Gaijin is just used to mean 'non-Japanese' and as such is inherently rascist. It is used constantly, by all kinds of people, to refer to foreigners, especially caucasians. If you are a gaijin, it doesn't matter where you come from. It only matters that you are not Japanese. Even Japanese living overseas, for example my friends in Sydney, will cheerfully refer to Australians as gaijin, without any sense of irony. There is nothing necessarily malicious in its use, but you cannot argue that part of its function is not to exclude: it is about creating boundaries between 'us' and 'them'
It is not as bad as 'nigger' , but its innocence is only relative. It might be more usefully compared to a word like 'Jap'; popular right up to the 70s, but thought to be pretty offensive now in educated company. 'Jap' serves the same function as 'gaijin': it is a useful abbreviation that is racially-based. Which is what this issue is really all about: race. In the West nationality and race are increasingly separated, while in Japan they remain synonymous. That is why the term gaijin is offensive- it confirms ethnicity and reminds foreigners in Japan that they can never be Japanese.
It is true that the word is most often not meant to be offensive, indeed it can even be respectful. Thus you have the existence of the term gaijin-san,
'Mr Foreigner'. I have even on a couple of occasions heard the term o gaijin-sama, 'Honourable foreigner'. It is obvious the Japanese are often unaware of the negative nuance behind the word, which is why many are surprised if a foreigner is offended. But this surprise merely demonstates the insidiousness of the problem; it is symptomatic of the inherently racial view of the world held by the Japanese, a worldview of which they themselves are often not aware.
That is not to say that some cautious optimism in not appropriate. On Japanese television the preferred term in now gaikokujin, and there is a creeping sense of the issue among intellectual Japanese. I remember clearly one of my first days in Kagoshima, where a young primary school teacher, introducing me to the class, asked the children not to call me gaijin, saying that gaikokujin was the correct term. I was impressed. Of course, that didn't stop the kids, their parents, other teachers and the Board of Education cheerfully and without conscious malice referring to me as gaijin for the next three years.
And while I object to being called gaijin on intellectual grounds, practically it is impossible to battle. Being upset at being called 'gaijin' in Japan is like being upset at having to breathe air. It is not a battle that an individual can win. I have never been allowed to forget my gaijinness, but you take the good with the bad. That's what living in a foreign country is all about.