A rare takeover battle pitting a pugnacious Internet entrepreneur against a stodgy media group is giving Japan Inc a crash course in bare-knuckles capitalism and making dealmakers nervous about an anti-foreign backlash.

An attempt by Takafumi Horie, founder of Internet startup Livedoor, to win influence over Fuji Television through a hostile takeover of Fuji's largest shareholder symbolizes a breakdown of old-style practices that ignored shareholders in favor of protecting managers and business ties.

``Japan is becoming a `normal country,''' said Jesper Koll, chief economist at Merrill Lynch in Tokyo. ``If you had to make a documentary on rule-based market capitalism at work you couldn't have scripted a better story.''

But some experts worry that conservative lawmakers and business executives are using a cameo appearance by a foreign broker in the domestic drama as an excuse to backpedal on a government pledge to promote foreign investment.

And if the pudgy, T-shirt-clad Horie fails, both foreign and domestic firms could well be discouraged from similar attempts in a country where hostile bids are rare and still carry a stigma.

``Horie broke ground, people realized it could happen and may be emboldened to do it, but if Horie isn't able to get cooperation [from Fuji] and can't make money, it could certainly be a very expensive failure,'' said Marc Goldstein, director of Japanese research at Institutional Shareholders Services.

The saga's complex twists and turns have gripped the public since Horie said in February he had taken a controlling stake in radio broadcaster Nippon Broadcasting System - a member, along with Fuji TV, of the Fujisankei media conglomerate.

It coincides with an impending revision of Japan's commercial code, including steps to make cross-border mergers easier as well as strengthen defences against hostile takeovers.

The Livedoor drama is by no means Japan's first or biggest hostile takeover. Sumitomo Mitsui Financial Group caused shockwaves last year with a US$30 billion (HK$234 billion) unsolicited offer for UFJ Holdings in an unprecedented banking takeover battle with Mitsubishi Tokyo Financial Group.

But Horie's challenge comes amid growing worries in conservative circles about foreign merger and acquisition activity and hostile takeovers. It is reminiscent of public perceptions in the late 1980s that Japan was buying up America, exemplified in books such as Michael Crichton's Rising Sun.

As was the case then, reality is a bit different. Foreigners buying Japanese firms accounted for around 13 percent of the US$78 billion worth of M&A deals in Japan in calendar 2004, little changed from the percentage four years earlier, according to research firm Thomson Financial.

Public sentiment against foreign acquisitions has risen since private investment firms such as US fund Ripplewood Holdings made billions of dollars in profits buying amusement parks, golf courses and banks bailed out by tax payers' money.

Ruling Liberal Democratic Party lawmakers seized on US investment bank Lehman Brothers selling an 80 billion yen (HK$5.77 billion) convertible bond to help fund Horie's bid. It was used as an excuse to delay rules that would allow foreign firms to use indirect stock swaps in takeovers of Japanese companies for one year until 2007. The party also said last week it would consider more measures against unwanted takeovers.

The political moves have prompted concerns among foreign companies that they are being made scapegoats.

``They want better defences, but I think they are using the bugaboo of the `vulture foreigners' as justification,'' said Robert Grondine, chairman of the American Chamber of Commerce in Japan. ``It's an intense political drama and unfortunately a lot of people are playing the anti-foreigner card to very good effect.''

Yoshimasa Shiozaki, an LDP lawmaker involved in revising the commercial code, said many of his colleagues on the new party panel were motivated by misguided nationalism.

``What are they trying to protect? They are talking about foreign capital, but Horie isn't foreign,'' he said.

``They're just saying `foreigners are scary,' without a vision of how to make Japan's economy strong.'' The political intrusion has raised fears the government will backslide on Prime Minister Junichiro Koizumi's promise to double foreign direct investment in five years from 2003.

FDI accounts for just 2 percent of Japan's gross domestic product, compared with 12 percent for the US and 20 percent in Britain. Total M&A activity made up only 0.32 percent of GDP in the fourth quarter of 2004, compared with 2.8 percent in the US.

``It's a big test,'' Grondine said. ``Is Japan getting integrated into global capital markets, or do they really want to be an island country unto themselves?''

That doesn't mean the takeover business is dead. Japanese M&A deals jumped 39 percent in the first quarter, even after stripping out MTFG's offer to buy UFJ, according to Thomson.