This paper analyses why the highly developed Japanese system of school and undergraduate education seems inversely proportional to student numbers proceeding to graduate education. Only a few do proceed. Traditional attitudes, which are not supportive of graduate education, are shown to stem from the view generally taken by the world of business and industry that graduate education is not of significance when recruiting staff. A distinction is, however, drawn between the humanities (in which graduate education is seen as appropriate only for those planning an academic career) and more recent developments in the fields of engineering and the natural sciences indicating a growing recognition of the value of postgraduate training. The work of the government University Chartering Commission - the body which authorises the establishment of graduate schools, is described - focusing on its measure to maintain the quality of graduate education. The author shows that university-based doctoral students may be at a disadvantage in terms of job-prospects, financial provision and laboratory-funding in comparison with industry-based students. The paper concludes by reviewing recent innovations aimed at tackling the problems described. Programs of continuing and professional education have been established with part-time attendance or a mixture of full-time (sometimes on leave from the company) and part-time attendance as well as specially designed inter-disciplinary programs with a focus on applied areas such as development in developing countries. The government is promoting refresher programs and cooperation between universities and business enterprises including joint research projects involving company-based engineers.