Pants wrote:

QUOTE:
Gaijin is short for gaikokujin, which means foreigner. From a Japanese point of view, gaijin is anyone not Japanese and is generally aimed towards Caucasians.

Although this is not an inappropriate explanation, it is important to understand that the concept of "foreigner" applies to both non-nationals and Japanese. "Gaijin" today are what Japanese from different regions were to each other before modernization and still are to each other in cases today. For example, minorities in Japan that are ethnically Korean, Chinese, Ainu, or Ryukyuan have all been subject to prejudice regardless of their political identity as citizens of Japan; many have eschewed foreign-sounding names to escape the xenophobia. There are also groups within ethnic Japanese (e.g. overseas Japanese, burakumin - the untouchables of Japan) that can face adversity among the mainstream population. Even those of certain regions such as Kyoto are very guarded against non-natives of Kyoto.

This insularity is a real issue facing anyone deemed to be any sort of outsider. At the very least, we can take comfort in that we aren't alone, but I can also say that I've met plenty of wonderful Japanese that couldn't care less; so I'm optimistic.