(FORTUNE Magazine) – If you are beginning to think that Japan has lost its flair for product innovation and global marketing, think again. No matter how far down Japan's economy may be, its R&D divisions and factories are far from out.

Japanese innovations now in the pipeline are designed to noticeably alter by 2010 the way we prepare a meal, use the TV or Internet, read a magazine, select a light bulb, or consult a doctor. And by 2020 or 2030--dates some Japanese R&D gurus are already preparing for--the changes could be stunning: huge orbiting solar panels that beam down electrical power by microwave; 300-story skyscrapers served by high-speed magnetically levitated elevators; computers able to read information stored in your brain. Warns Eric Bloch, chairman of the U.S. National Research Council's Committee on Japan: "Japanese companies are just as strong as ever in many key technologies. If the U.S. is complacent and underestimates Japan, we could find ourselves facing the same problems we faced in the early 1980s, when complacency was rampant."

Signs of Japanese energy are to be found at the U.S. Patent Office, which last year granted to Japanese 32,119 U.S. patents, a 32% increase on Japan's figure for the previous year. That was well over three times the total for Germans, the office's next most active foreign applicants. (Americans were granted 90,704 patents.)

In the past few months alone Japanese companies and research groups have announced important product and research breakthroughs. Mitsubishi has invented the world's first artificial color retina: Cameras with the retina installed will give photographers unprecedented control over what is shown in images--for example, a picture of a soccer player kicking a ball may be made to show only the ball. Hitachi has discovered how to stack two 256-megabit memory chips in one package, enabling a vast expansion of memory for personal computers, workstations, and servers. NEC has unveiled a fundamental circuit device, the first building block of the next generation of supercomputers. After another decade or so of development, these "quantum computers" will enable space agencies and other advanced scientific institutions to do in just a few minutes calculations that would take present-day supercomputers trillions of years. And though you'll have to wait until about 2020 to see the prototype, the Tohoku Institute of Fluid Science is designing a solar-powered train.

Some of the products featured in this story, like flat-screen tele-visions and video cell phones, are just being launched and may prove to be the first in a long line of exciting new products.

Others--like the computerized refrigerator that tells you when you're low on milk and then sends an order to your local supermarket--are merely a gleam in the eye of inventors. There's no guarantee that when they're launched they won't flop. That said, the gizmos and gadgets here are the ones that truly excite today's Japanese scientists and engineers.

To understand Japan's relentless approach to innovation, go to the influential but little-known 28-year-old Institute for Future Technology (its acronym: Iftech). In a modest Tokyo building, director Takashi Kikuta and his staff of 50 produce surveys that keep all corners of Japanese industry abreast of local and global technological advances and their implications. Once every four years Iftech's national survey of 4,000 or so top Japanese CEOs, R&D managers, scientists, engineers, and some unclassifiable visionaries identifies the year in which labs will likely achieve research breakthroughs, and the expected time lag before a product appears. Sometimes the think tank strikes out. "We missed predicting the Internet," Kikuta admitted to FORTUNE. "In the survey before last [conducted in 1992] we didn't even have a category for it." But many Iftech forecasts are more or less on target, providing Japanese industry and science with an invaluable map of the next 30 years.

In its survey, Iftech covers fields such as electronics, information, transportation, health, medical care, and welfare. This last category is greatly influencing Japan's consumer electronics development. Already, roughly one in three of Japan's 44 million households includes at least one person age 65 or older. Almost half of these households are composed entirely of old people. Japanese R&D staffs are working on scores of new products for this growing market, which has a parallel in the U.S. as the oldest baby-boomers approach their 60th birthdays.

Many of the products are existing devices redesigned for senior citizens--for example, home appliances with simplified controls and large type--but some are entirely new. Tokyo University and Sivax, a Yokohama-based manufacturer, have developed an electric car for drivers with poor leg reflexes: It's called the Kappo (Japanese for "walk briskly"), and its brakes and accelerator are hand-operated. A wave of robots that provide the elderly with a kind of companionship has hit Japanese markets over the past few months, and many more are in the works. NEC's R100 robot, billed as "a robot with attitude," takes 250 photos of you at your first meeting, and with a memory based on such data is able to recognize you (and up to nine other people) in subsequent encounters. It remembers how well you treated it--gently or with unfriendliness--and responds accordingly. Its database of 100 or so spoken phrases enables it to conduct a limited conversation.

Matsushita Electric is developing Tama (a common Japanese name for a cat). Like the R100, it develops a kind of personality, shaped by the way its owner treats it. The 11.8-inch-long creature knows about 55 phrases, including greetings, and can also deliver weather reports and useful information from local communities or warn a security monitoring center if anything unusual happens to its owner. Tama won't be on sale until about 2001 (estimated retail price in Japan: $450), but other robotic pets have already come onto the domestic market.

In June, Sony introduced a robotic dog, Aibo. (The name's first two letters stand for "artificial intelligence" and the word itself means "partner.") Aibo can talk, wave its paws, play with a ball, and, like the R100 and Tama, develop a personality. Despite a $2,200 price, the first batch of 3,000 units was snapped up in 20 minutes in Japan; a similar offering on the Internet in the U.S. took so many hits that the server crashed. "The '80s through the '90s was the era of the digital computer," says Sony Computer Science Laboratories chief Toshi Doi. "We're about to enter the era of the digital creature." Doi sees these early "entertainment robots" eventually developing into, among other things, electronic servants capable of a wide variety of domestic chores, especially for the aged.

Meantime, younger Japanese families are not being neglected. At the moment, the most convenient way to view how they will live in the future is to visit the atrium lobby of the Matsushita group's R&D center in Tokyo. On display is a house with an awkward name: the Home Information Infrastructure (HII) House.

At the structure's heart is what Matsushita calls the Home Server, the data storage and retrieval nerve center of the next century's computerized household. For now, the house displays a mockup--the actual Matsushita product won't be available for a year or so. However, NEC's equivalent system, the ten-gigabyte Giga-Station, capable of storing broadcast, cable, or videocassette TV programs and then presenting them on demand, went on sale in September (retail price in Japan: $3,600; no marketing plan yet for the U.S.).

Most major consumer electronics firms are developing boxes similar to Home Server and GigaStation. Says Sharp vice president Tsutomu Kobayashi, deputy general manager of the company's corporate R&D group, which has a similar device in the pipeline: "Unquestionably, the home server, whatever each company calls it, will be one of the blockbuster products of the new century's first decade."

By 2003, when Matsushita's Home Server appears, it will have more storage and retrieval functions than just those for entertainment. Some of these products and services appear to demand lifestyle changes--and charges--that not all families may find comfortable, but Matsushita seems committed to this leap into the marketing unknown.

The home information terminal (HIT). This PC-like monitor displays all vital household matters--family members' daily schedules, health records, and accounts. The terminal is also linked to four other revolutionary products:

The "networked refrigerator" and "networked oven." No longer simply a passive cold-storage unit, the refrigerator will read container bar codes signaling the identity and quantity of all its stores and, via its data link with your local supermarket, automatically order new supplies. A couple of keystrokes on your HIT has the refrigerator--or your similarly networked oven--tell a home-cooking Website what food is available. Within seconds the HIT monitor lists all possible recipes. A few more keystrokes, and a screen gives you directions for meal preparation and controls oven temperatures until the dish is cooked.

Matsushita's HIT and oven won't be on the market until next year at the earliest. However, in September, Sharp began selling in Japan (for about $900) its RE-M210, "the world's first Internet-linked microwave oven," capable of accessing some 400 recipes at the company's Smart Cooking Website. (The high price is standard first-sales practice in Japan, where a small but dependable community of affluent consumers seems willing to pay for the privilege of being one of a new product's earliest owners.)

The "networked toilet" and "networked medical kit." Two related products that Matsushita will begin selling next year--the health-monitoring toilet and VitalSigns, a computerized medical kit--will transmit a constant stream of personal data to both your local clinic and your home server. The toilet seat reads weight and body-fat ratio, body temperature, and blood pressure and by 2003 will be able to check protein and glucose levels in your urine.

Kept in the HII bedroom, the VitalSigns kit is a plastic attache case containing such familiar items as a blood-pressure gauge and thermometer. But some 21st-century gadgets are also included. By pricking your finger with a needle attached to the end of a penlike instrument, you can read your blood-sugar level and transmit it to your clinic. A built-in videophone makes possible face-to-face consultations with doctors. If you are, say, suffering a cold, just put a tiny camera-tipped wand in your mouth, and the doctor can inspect your respiratory tract from miles away.

Videophones and other telecom gadgets will be another area in which Japanese manufacturers will offer stiff competition. In July, Kyocera Corp. began selling the VP-210 Visual Phone, the world's first mobile videophone, able to send and receive images of callers. In spring 2001 (at least a year ahead of Europe and two or three years ahead of the U.S.), Japan will become the first country with widespread "third generation" (3G) telephones.

Third-generation phones will use a new wireless wide-band technology called CDMA (code-division multiple access). By about 2003 or 2005, Matsushita, Mitsubishi Electric, NEC, and Kyocera will be selling thin, wallet-shaped devices that will contain a regular phone (which will be able to handle videoconferencing for multiple users), a fax, and a mini-PC with an Internet link operating at up to two megabytes per second.

At this speed, lightning-fast Internet access, several channels of full-motion video, and instant data downloads are possible. Or, if you're a bizarrely compulsive reference-checker, you can download on the run all 32 volumes of Encyclopaedia Britannica in less than five minutes. Researchers predict that watch-sized models will be on the market by 2010. The ever smaller size of the screens calls for special content: NTT Mobile Communications, Japan's leading mobile operator, and CNN (owned by FORTUNE's parent, Time Warner) are already testing a 3G news service that combines headlines with 20-second videoclips.

If Japan's engineers have their way, everyone will soon be watching episodes of Baywatch on extremely high-resolution flat screens. The revolution in flat screens goes back to the early 1970s. At that time the most that a digital watch face could do was blink black and gray numbers. But then Sanai Mito, a former Osaka Municipal University professor working for Sharp, wondered whether his watch's liquid-crystal display, a sandwich of silicon wafer and chemicals, could be made to flash other images.

The success of the liquid-crystal display (LCD) research team that Sanai led may now be seen on most laptop computers. Electrical charges produce color images by affecting chemicals inside the laptops' LCD screens. Today some 80% of the world's laptop screens operate this way. And the research avalanche that Sanai launched is far from ended: It's now transforming the television industry.

Since TV's advent in the 1930s, the bulky, power-hungry cathode-ray tube (CRT) has been the standard technology. Because the tube must be strong enough to sustain a vacuum without collapsing and because it must often beam electrons across a foot or more to a thick screen, the CRT monitor is awkwardly heavy and deep. If Japanese research into so-called flat-panel TV maintains its present momentum, the bulky CRT may soon be history.

Developers still have improvements to make in flat panels' color variation, screen life, and visibility from the side, but gradually flat screens are approaching the CRT's technical performance. Various alliances are promoting at least four different flat-panel alternatives to the CRT, and some early versions are already selling globally. Fujitsu, Hitachi, NEC, and Matsushita are pushing the plasma display panel, wherein electrically charged ionized gas helps generate the color images. Canon and Toshiba have opted for field emission display, whose millions of tiny electron guns bring a screen to life. Mitsubishi Electric and Texas Instruments are collaborating on the digital light processor, which uses microscopic mirrors to direct digitalized light onto a flat screen. And Sharp and Sony (along with Philips Electronics of the Netherlands) are developing plasma-addressed liquid-crystal display, an advance expected to deliver a brighter, larger LCD screen.

These predominantly Japanese R&D efforts are intended to deliver, no later than 2003, TV screens that could be about an inch thick or less and commensurably lighter in weight. That's the year in which Japan launches digital terrestrial TV (i.e., digital TV signals sent via conventional antennas rather than by satellite or cable). The Japanese are betting that digital television will help drive flat-screen sales. The manufacturers' basic message will be: Since you're planning to switch to a digital set anyway, why not buy one with a flat screen? Will the plan work? Japan's flat-panel manufacturers are confident that the light weight of the new sets will quickly persuade millions of conventional TV set owners to switch: No lugging required. "Once you use a thin, flat-panel TV, you never think again of the heavy, tube-based set," says Sharp's Kobayashi.

Flat-panel TV, however, is only a beginning. How and where you watch TV may change. Olympus' wearable TV monitor, Eye-Trek, picks up TV signals with an aerial in a tuner the size of a pocket camera. Perched on your nose like spectacles, the Eye-Trek's two tiny screens offer an image equivalent to a 62-inch monitor (price in Japan and Europe: about $800; unavailable in the U.S.).

Such a device is a harbinger of the "wearable computer." But scientists are already thinking far beyond the Eye-Trek. Tokyo-based engineer and science writer Dennis Normile speaks of a wearable computer akin to an "experienced and knowledgeable butler." For example, it would recognize from your conversation that you were going to lunch. A built-in global positioning system would determine your location, and the computer would whisper restaurant information into your ear or display it on your eyeglasses. Says Normile: "While such devices may sound like science fiction, they're already in the labs. And they're likely to move onto your body more quickly than those vacuum tube and copper wiring computers of 50 years ago moved onto your desktop."

The imaging revolution will also revolutionize publishing. By 2005, Sharp's Kobayashi expects "sheet computers" (also known as "electronic paper")--in effect, plastic monitors of the size, weight, flexibility, and legibility of, say, FORTUNE magazine. The content would be downloaded from the Internet and, via advanced versions of flat-panel technologies, replayed like today's Web magazines, but with definition closer to that of print media. Another possibility currently being discussed by Sharp (but unlikely to be built before 2005 or 2010) is the downloading of magazine pages into a projector perhaps the size and shape of a large pen. Says Kobayashi: "You would pull a screen from the side of the pen's cylinder [in the manner of someone unrolling, say, a measuring tape] and a tiny lens on the device's side would project small pages onto the screen."

By 2010 screen technology could be totally revolutionized by something called organic electroluminescence (EL). It works like this: When an electric field is applied to a cardboard-thin polymer sheet, it emits light--and thus an image--without heat. Iftech surveys refer to a possible concept called "mood-altering TV"--in effect, "TV wallpaper," able to instantly change a room's ambiance. A Sharp promotional video already features one adaptation of this (still some years from the market): A bedroom ceiling becomes a giant TV screen able to display sleep-inducing scenes. Stars twinkle from the night sky, or perhaps sheep wait in a meadow to be counted. Labs in Japan, the U.S., and the U.K. are scrambling to refine the technology. In September, Sanyo Electric and Eastman Kodak revealed joint development of a device whose technology amounts to a tiny, early glimpse of such ultrathin screen products: the world's first full-color organic EL display for use in digital cameras and personal digital assistants. Such lightweight screens require very little energy and thus use smaller batteries, further reducing heft, a big advantage in mobile equipment.

One of organic EL's hurdles is said to be creating the color blue in all its variations, but further research is expected to solve this problem. There is, after all, a recent and striking precedent in Japan for mastery of this electronically difficult color. And therein lies the story of yet another Japanese product already in the process of changing our lives (and budgets)--the world's first bright-blue light-emitting diode (LED).

The incandescent light bulb Thomas Edison invented gives off light because of its high temperature. By contrast, LEDs, which are semiconductors that bring together and excite electrons, produce light without heat through electroluminescence. LEDs come in a great variety of shapes and sizes but are probably most commonly seen as the illuminated numerals on such things as auto dashboards and air terminal displays. The materials first used to make LEDs managed to produce red and green light, but bright blue, a shorter wavelength, defied all early efforts. Then, after four years of experiments, which he had launched during a 1989 sabbatical at the University of Florida, a young Japanese scientist, Shuji Nakamura, discovered that LEDs made from gallium nitride were the answer.

Nakamura is an employee of Nichia Chemical, a small Japanese company based in rural Tokushima prefecture. Since he announced his discovery in 1993, gallium nitride LEDs patented by Nichia have been slowly moving into use around the world. They won't replace Edison's well-entrenched bulbs overnight. LED production costs are still high: The 500 or more individual LEDs needed to construct, say, a typical traffic light cost more than $200, compared with around $2 for a regular incandescent bulb. But the LEDs last ten times as long and use so little electricity that traffic lights reportedly pay for themselves in three years. Philadelphia, Stockholm, and Melbourne are some of the cities that have installed the new technology. At the Sydney 2000 Olympics, huge lamps strung with thousands of LEDs will illuminate stadiums. Because LEDs may be made intense enough to shine in broad daylight, they are also becoming common on outdoor advertising and highway traffic-advisory signs. Use of LEDs is also widespread in color copiers, scanners, and printers. Nichia hopes that as LEDs are produced in increasing quantities, economies of scale will soon cut the price sharply.

Nakamura and his bright light are timely reminders of Japanese industry's continuing vigor, says Bob Johnstone, author of a recently published revisionist history, We Were Burning: Japanese Entrepreneurs and the Forging of the Electronic Age (Basic Books, 1999). Johnstone confesses that earlier in this decade he felt that the technological entrepreneurship witnessed since 1945 might have been confined to Japan's immediate postwar generation. "Since most of the stories of research breakthroughs that I had collected took place in the 1970s and 1980s," says Johnstone, "I wondered whether the entrepreneur spirit had begun to wane." But then came the bright-blue LED in 1993--"done entirely under [Nichia chemicals'] own steam, without any government support whatsoever." This helped return him to his earlier opinion: that Japanese industry has been successful because it produces first-class individuals and has never been simply teams of government-directed committees, as is often charged.

Says Johnstone: "The most important driver of [Japan's invention] dynamic is--and always has been--not policy, but people." The exciting products slated to be Japan's first 21st-century exports indicate that the country in which individuals like Sharp's Sanai Mito and Nichia's Shuji Nakamura are still active can't be counted out. In fact, a burst of technological creativity could certainly help bail Japan out of its economic troubles over the long haul. "The Japanese have repeatedly demonstrated their resilience," Johnstone reminds us, "especially when their backs are against the wall."

REPORTER ASSOCIATE Cindy Kano