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That shouldn’t matter in the long term, though, should it?
A minority of companies with good business economics should manage to outcompete everyone else aside over the course of a few decades.
Unless the economy in Japan is really nepotistic/statist or something and not at all competitive/capitalistic.

The "outcompete" theory would work in any one industry better than it would for the economy as a whole.
Also, outcompeting a competitor means winning more business by providing more value for money to clients.
You can do that while making no profit at all. In fact, that makes it a bit easier: you can sell at cost.
Sometimes even less than that.
With support from friendly associated firms, banks, and government intervention a Japanese firm can sometimes lose money for decades.

But your second explanation certainly has a little bit of plausibility as well.
Making money for shareholders is not a significant goal of the management of the typical Japanese listed company.
You would think that it might be a useful secondary goal, as it could increase the prestige of the firm (something which IS very important to managers)
But corporate prestige comes primarily from gross revenue, revenue growth rate, and technical achievements.
Traditionally, concerns of profitability are limited to the top level executives. Senior product managers making decisions wouldn't usually concern themselves with it.
That's one reason you get a lot of amazing products that don't make any money.

These generalities have big exceptions, and of course corporate culture has presumably changed a bit over the decades.
But the sad truth is that it's quite possible to own shares in a well run well respected Japanese firm and never see any benefit from the profits, if any.
It was so bad for a while that the stock exchange created a new index based in large part on ROE,
thinking it would nudge managers into working for the benefit of shareholders, but it has so far flopped.
ROE is an input to the index selection, but company size is a bigger input, so it seems all the big firms simply kept doing the same old thing.

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