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Howard stringer says that sake is "not an antidote to jet lag," but he's sure going to need something that is. The American citizen, born and raised in Britain, was named CEO of Sony Corp. last week, replacing Nobuyuki Idei, 67, who, at a packed press conference in Tokyo, announced that he was voluntarily stepping down. Stringer, 63, is going to keep offices in both Japan and New York, and will continue to spend what little free time he's likely to have at his homes in New York and Oxfordshire, England. That amounts to a lifestyle that few would ever plan for, and Stringer certainly didn't. He told TIME last week that when Idei first called him with the suggestion of the new job, he was taken aback. "I had not considered that a likely alternative," Stringer said. No shame in that. Nor had anyone else.

Though he has been running Sony's U.S. operations since 1997, Stringer speaks no Japanese. And Sony's management ranks held a host of oft-mentioned Japanese heirs apparent for Idei's mantle. That Sony should have turned to a foreigner speaks worlds about how troubled the company's prospects have become. But last week's news was about much more than one man and one company. For if you wanted a symbol of Japan's astonishing rise from the ashes and defeat of World War II to its position as the second largest economy on earth—and a place of both broad-based prosperity and cultural creativity—then Sony is it.

Founded by two close friends, Masaru Ibuka and Akio Morita, in 1946, the company rapidly developed a reputation for high-quality, well-designed radios, tape recorders and TVs. You can even claim that with the introduction in 1979 of the Walkman—the device that enabled millions to listen to music while commuting to work or jogging—Sony all but invented multitasking, that combined benefit and scourge of modern life. Along the way, Sony's founders managed to pull off a difficult double act. On the one hand, they recognized that if the company was to grow to its full potential, it had to capture foreign markets. Basing himself in New York—when Sony opened its store on Fifth Avenue in 1962, it was the first time the Japanese flag had flown in the city since the war—Morita became the best-known Japanese businessman in the world, friends with the great and the good on three continents. But Morita came from a family of long-established sake brewers, and the company was also always careful to maintain its Japanese roots. Notwithstanding the attractions of low-cost labor elsewhere, Sony continued to source products in a Japan that had—by virtue of the success of the company and others like it—become one of the most expensive places on the planet to do business. In 1989, at the height of Japan-bashing in the U.S., Morita even co-authored a defiantly nationalistic tome—The Japan That Can Say No—with Shintaro Ishihara, now the governor of Tokyo, who believes that Japan should stand up to Washington both militarily and economically.

Stringer's appointment—with its implicit acknowledgment that there was no Japanese sufficiently qualified to lead the company—is evidence of how hard Japan Inc. now finds it to pull off the double act that Morita once handled so well. To an extent, the troubles of corporate Japan are a function of a long period of economic stagnation. During the boom years of the 1970s and '80s, Japan Inc.'s single-minded focus on engineering and process development—not to mention a resistance to foreign ideas—were hallmarks of the country's rapid economic progress and a source of national pride. But when the economic bubble burst in the early 1990s, Japan was gripped by a crisis of confidence, as if its success in the past loomed over its present travails like Mount Fuji. This crisis is centered in the commercial realm, but it is not confined there. Though the streets of Tokyo and other large cities are full of crowds so rich and stylish that you would never guess the nation had ever smelled a recession, Japan is beset by a host of social, political and economic problems: a shaky financial system, chronically low GDP growth, an aging population, hidebound and paralyzed political leaders. Meanwhile, China, the sleeping giant next door, has awakened to spar with Japan over export markets and natural resources, challenging Japan's customary position as the region's role model. In the past year, foreign direct investment in Japan dropped by 3%. In China, it surged by 65%.

Japan's task now is to decide how to best answer these assaults. Cling to core values that brought success in the past? Or boldly step out into the new world? Conservative voices are being heard. Tokyo has opened up a debate over proposed changes to the American-style constitution that was imposed on the country at the end of World War II, and the makeover of Japan's mission statement has been seized by nationalistic lawmakers as an opportunity to reinforce Japanese culture. A subcommittee involved in the revision recently submitted proposals that recommended, for example, restoring Shinto to a privileged, state-funded religion; banning books "that have a detrimental effect on young people's upbringing"; and limiting freedom of assembly. But Stringer's appointment suggests that at least one icon of modern Japan is prepared to take the second course, and open up even more to the world.

Stringer isn't the first foreigner to head a large Japanese company; in 1999, Carlos Ghosn, a Lebanese born in Brazil and educated in France, was appointed to the executive suite of Nissan Motor. The challenge at Sony is no less pressing than that at Nissan; when Stringer told TIME that he was "bedazzled by the problems and demands of the job," he knew whereof he spoke. For Sony's woes are well known. The company that once had a magic touch—creating not just the Walkman, but the Trinitron TV and the PlayStation too—has gone adrift in an age of increasing competition and digital convergence. Its core electronics business, which accounts for more than 60% of revenue (but lost $339 million last year), has been beset by successful competitors in virtually all its product lines, ranging from Samsung televisions to Kodak digital cameras. Most humiliating, Sony lost its leadership in portable music players by failing to capitalize on the popularity of MP3 files, a gap that Apple's iPod—an idea that would once have shrieked "Sony!"—has exploited spectacularly. The Japanese company has been in turmoil ever since April 2003's "Sony shock," when the firm announced drastically lower sales and earnings. Its stock has dropped 66% over the past five years.

Stringer's task is to turn around the fortunes of one company. For corporate Japan, however, the question is whether his appointment represents a wholesale shift in boardroom thinking. Within Japan itself, Sony has always appeared a bit of a maverick: "Not a typical Japanese company," in the words of Richard Katz, editor of the Oriental Economist newsletter. Edward Lincoln, of the Council on Foreign Relations in Washington, D.C., and author of the book Arthritic Japan: The Slow Pace of Economic Reform, points out that Sony was the first Japanese company to list on the New York Stock Exchange and the first to adopt a Western-style management structure with a board that comprised insider and independent directors alike. "Sony is a global enterprise, so it was expected that at some point a foreigner would become CEO," says Masaru Kaneko, a professor of economics at Keio University in Tokyo. Stringer himself says that approximately 70% of the company's stock is owned by foreigners, and points out that Ryoji Chubachi, appointed to be his president, lived in Alabama and speaks English with a Southern accent. (For that matter, Idei's love for French culture and knowledge of French wines is legendary.)

Yet taken as a whole, Japan Inc. remains one of the most insular corporate cultures on earth. Over the past 15 years, plenty of Western management practices, investors and executives have been tried, with mixed results. For every Ghosn, who is now a national hero for saving Nissan, there is a Rolf Eckrodt, the DaimlerChrysler executive who failed to turn around Mitsubishi Motors. For every Ripplewood Holdings, the U.S. investment firm that bought out and successfully relaunched the bankrupt Long-Term Credit Bank as Shinsei Bank, there is a Carrefour, the French retailer that is withdrawing from the country after just five years. Still, Katz sees slow progress. "For a long time, the Japanese élite and public had negative attitudes toward foreign investment, fearing it would mean loss of control. Today, foreign direct investment is more acceptable, as are foreign buyout funds—and now foreign CEOs."

To that list, add foreign centers of operation. Stringer got his chance because Sony's American operations have been one of the company's few bright spots. He presided over the rebound of Sony Pictures, where the Spider-Man franchise is raking in profits, cut costs ahead of company-wide schedules, merged Sony Music with the music division of Bertelsmann AG, and, last year, led a consortium that bought MGM and its valuable film library. In the first three quarters of 2004, Sony's U.S. operations kicked in 30% of the company's revenue. "Stringer got this job with the expectations that he will accomplish something similar throughout the entire company," says Yuichiro Yamagata, editor in chief of the Weekly Toyo Keizai business magazine.

But even without any cultural clashes, that will not be easy. Sony is a mature, $70 billion-a-year business; it can't grow as fast as it did when it was young and nimble. The company is known for fiefdoms and fierce battles between content units and hardware departments over compatibility, copyright and distribution issues. "You have to break down the silo walls that helped iTunes [Apple's online music store] clean our clock," says Stringer. "You've got to collect people who buy in to change—and if they don't, you have to move them. In the U.S., we cut 9,000 jobs and $700 million out of the budget. That's the blueprint. But it is not as easy to do this in Japan."

Indeed, it is not. Last week, for example, an effort by Japanese Prime Minister Junichiro Koizumi to encourage foreign companies to buy or merge with Japanese businesses was set back when legislators postponed needed legal changes until at least 2007. But a foreigner would never have got the chance to run Sony if Japan was not changing. In Sony itself, that transformation is now well grounded. "The Japanese executives' concern about Sony is palpable," says Stringer. "They are not rooting for me to fail. Our pride has been battered and it's time to fight back."

• Jim Frederick | Tokyo
• A troubled Sony selects an American ceo, shocking the country's insular business community—and demonstrating how serious the Japanese crisis of confidence has become