FORTUNE — Is Japan’s research and development spending going down the toilet? Some of the innovation, for example, at the country’s leading high-tech lavatory maker Toto, suggests perhaps so. The company has developed a new washroom model that is inexplicably capable of shooting a soccer ball at 160 kilometers-per-hour. This bizarre and wonderful piece of technology showcases the ingenuity Japan is famous for. The overly ornate contraption could also symbolize where much of research and development spending by Japanese companies has gone wrong.

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That some in Japan pursue so many seemingly trivial, unwarranted inventions has long vexed Tokyo-based technology consultant Nobuyuki Hayashi. His explanation, he says, is to understand the Japanese mind-set and educational system. “[The] Japanese tend to mistake the means for the end. At Japanese schools it’s more important to memorize the patter of tricky questions presented at the entrance exam than to study the real nature of things,” he argues.

This type of focus, others agree, was useful for a manufacturing economy but makes the transformation into a digital economy difficult for Japan Inc. Tech companies, such as Docomo with its vast R&D centers, are failing to make an impact because they don’t understand or are not willing to change to suit the new market says researcher at Tokyo’s University, Ryozo Yoshikawa who spent 10 years working for Samsung, the Korean giant. “Japan may have superior technological innovation, but this is no longer a competitive advantage for businesses because Japanese designs are too expensive and lack the savvy that the likes of Apple (AAPL) and Samsung have.” In other words, he says they are not offering what the consumers want.

As Japan slides deeper into recession, the proof is in the appalling sales figures of consumer electronics makers — despite the fact that Japan is third after the US and China for the number of patents filed each year. In fact, Japan put in for 344,598 patents in 2010 according to the latest figures from World Intellectual Property Organization. That’s just behind the USA’s half-million applications and nearly 18% of the world total.

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Critics say that this impressive figure masks the fact that many patents are focused on small incremental improvements often using and imitating an American model. “Researchers are set patent quotas and are encouraged to file on any minor improvement,” explains Lloyd. “Indeed, it’s considered a learning exercise, and rather than creating breakthrough technologies which typically entail high risk and expense.” He adds that it is highly efficient for Japan to get the best technologies from other countries and apply them at home. “In this respect Japan’s tech R&D doesn’t produce raw products, but it does produce useful outputs.”

Meanwhile, R&D output is falling in Japan. Regionally, companies based in North America grew their R&D spending by 9.7% — slightly above the global average of 9.6% — while Japanese firms grew theirs at 5.4%. Indeed, Japanese companies may be losing faith in the long term-planing and heavy R&D spending model that was able to absorb the misses as well as generate the hits in the past. Over the last 10 years Japan’s consumer electronics industry promised reform and even the country’s powerful mandarins tried to push them to evolve to no avail.

The results are stark.  Sharp and Panasonic were downgraded by agencies last week, while Sony (SNE) recently promised radical restructuring to rid itself of red ink. Sharp now faces a bailout, but not before it tried a last bid for re-invention by creating the Galapagos product range — named in a rare display of gallows humor perhaps. (The island is in the middle of nowhere.) Those products have not been successful.

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Panasonic also looked to its labs and came up with an unconvincing move into “eco” products. Sony has had its own misses, including its “HappinessCounter” fridge which recently won a top Japanese design prize. As it explains in the usual distressing translation that often accompanies Japan’s attempts to market its research abroad, this perky appliance is a “HappinessCounter: Smile-Encouraging Appliance to Increase Positive Mood.” (Basically it is a refrigerator that does not open unless one smiles at it.)

Products like these are a depressing reminder of what wasted talent can produce. With a proven track record for innovation, Japan’s engineers are seemingly finding it much harder to create successful products. Unless of course you are looking for a toilet than can play goalie.