Here are fragments of Chapter 39. Uniqueness and Internationalism from book The Japanese Today - Change and Continuity by Edwin Reischauer. It was published in 1988 but its content is still mostly relevant. Have a nice read.
* Introduction *
Nation, language, race and culture are all related but distinct concepts to most modern peoples, but in Japan they all seem virtually synonymous. Until recently all the people in the world who spoke the distinctive Japanese language and lived in distinctive Japanese way resided in Japan, and there was virtually no one else in the country. The only exceptions were a handful of aboriginal Ainu in the north of Japan and a few Chinese, Koreans, and Dutch traders in Kyushu, but all of these were obviously outsiders. The line between uchi and soto - between "inside" and "outside" - was clear. A person was by race, language, culture, and nation either fully Japanese or not a Japanese at all. The Japanese formed a sort of gigantic modern tribe. Even the use of foreign models and the heavy borrowings from China and the West of political institutions, culture, and language did not change the situation. These borrowings became part of Japanese culture and therefore part of the amalgam all Japanese shared, but they did not change the uniqueness of Japan.
* Whites *
Race looms large in the self-image of the Japanese, who pride themselves on the "purity" of their blood, despite the obvious mixture that went into the forming of the Japanese people as late as early historic times. We often think of racial prejudice as being a special problem of the white race in relations with other races, but it actually pervades the world. Nowhere is it greater than in Japan and the other lands of East Asia. Because the Japanese have merged their feelings about race, culture, and nation together, they probably made their attitudes toward race all the stronger.
Before World War II few Japanese had ever had any significant contacts with Westerners, and they still reacted with some of the shock they felt when they first encountered Portuguese in the sixteenth century. They found them possibly revolting with their blue eyes and "red" hair - the attributes of goblins in Japan - and their sweaty bodies clothed in hot woolen clothes and inadequately bathed according to more fastidious Japanese standards. A strong body odor resulting from a diet richer in animal fats made them still smellier. Bata-kusai, "stinking of butter", is still a term used for obnoxiously Western things. Styles in clothes, food, and bathing have changed since then, but the hairy bodies of Caucasian men are still somewhat revolting to Japanese, and the sense of racial difference still runs deep in Japan. In the many cases of interracial marriages I have known, if family objections were raises, it was almost always the Japanese family that protested the most.
* Blacks *
Japanese attitudes towards the black or darkly colored races are worse than toward Caucasians, whose blue eyes and "red" hair are now much admired. Having had almost no contacts with blacks before coming of the American army of occupation, Japanese still tend to view them with some wonderment and revulsion. During the civil rights movement of the 1960s in the US, most Japanese unconsciously looked at the problem from the point of view of the majority whites. The long injustices that the blacks had undergone impressed them less than the difficulty the whites faced in dealing with such a large and very distinct minority.
* Asians *
One would assume that Koreans and Chinese, who in physical characteristics are usually indistinguishable from Japanese, would be racially more accepted than Westerners, but this is not the case. Probably more Japanese parents today would tolerate and American son-in-law or even a daughter-in-law than they would a Korean or Chinese. "Racial" prejudice is severe against roughly 700,000 Koreans who remain in Japan from among those imported for forced labor there during WWII. Despite the fact that more than forty years have passed and most of these so-called Koreans have become Japanese in language and living style, that are prevented as much as the laws permit from acquiring Japanese citizenship. Most Japanese still feel that marriage with child of a Korean or Chinese immigrant, as with the surviving 2 percent of Japanese irrationally designated as outcasts (burakumin), would sully their pure Japanese blood. During the past two decades of disturbances in Southeast Asia, only few hundred Southeast Asians have been granted permanent domicile in nearby Japan - a shameful contrast to the white countries that, half a world away, took them by thousands.
Attitudes in Japan toward racially similar peoples contrast sharply with those of Europe, where international marriages have always been common, particularly among the aristocracy, and where class has been more important than nationality or minor physical differences. (...) In the East Asia mixed marriages occurred only between the social scum of port cities.
The racist attitudes of East Asia are clearest in the treatment of children of mixed marriages. In Korea and Vietnam the offspring of American soldiers and native women, usually of low social status, have normally been rejected by the local society or subjected to severe discrimination. (...)
* Acceptance of foreigners *
The strength of the "we-they" dichotomy among the Japanese has created special problems for those who have gone for prolonged periods to foreign countries. (...) When people of Japanese descent visit Japan as successful citizens of their new countries, it is all too clear that they are not "insider" Japanese but "outsider" foreigners.
If it is extremely difficult for other East Asians living in Japan to cross over the imaginary "racial line" and actual "cultural line" into full membership in Japanese society, it is all but impossible for a Westerner. Occidentals are treated with amazing kindness and hospitality, though rarely invited to a Japanese home simply because of the embarrassing lack of space. (...) Usually the treatment they receive is so generous as to make them seriously embarrassed when it comes to reciprocating.
But such kind treatment is based on the assumption that they will remain merely visitors or at least outsiders. It is very difficult for a Westerner to be accepted as truly one of the group. A Westerner who becomes very well informed about Japan may even be resented. To the extent that he becomes accustomed to Japanese habits of thought and ways of life he may come to be considered a hen na gaijin, a "foreigner with a screw loose", who makes the Japanese feel ill at ease. True fluency in Japanese may rise feelings bordering on hostility, though a few outrageously mispronounced phrases will produce enthusiastic praise. The Japanese feel that foreigners should never forget that they are foreigners.
Many Americans living in Japan are infuriated by their ultimate rejection and irritated by the unconsciously pejorative overtones of words used for foreigners.