''Japan is a village,'' an internationally known management consultant says. What a village! These 118 million people inhabiting a string of islands off the East Asian coast, with a total land area less than that of California, have moved in a little more than a century from isolated feudalism to being the world's third-largest economy, dwarfed only by the United States, and nearly as large as the Soviet Union.

Are the Japanese part of the Western world, or are they not? Their government is democratic, their economy is capitalist, their society remains, well, a kind of village.

Cozy, inward-looking, rice-growing and rice-eating, the Japanese tend to cluster in groups - the family, the school, the cooperative, the company. Competition between groups is intense, but as in most rice-growing societies, there has to be cooperation on matters that affect the general welfare.

With one eye the Japanese look to huge, continental China, which one ancient Japanese emperor defiantly called the ''land of the setting sun.'' With the other they look thousands of miles across the Pacific to the US. In the modern world, Japan is an ally of the US, which wants to be a friend of China. Energetic Prime Minister Yasuhiro Nakasone has already been twice to Washington in his first 10 months. His next foreign visit will probably be to China.

Today, both for the government and the people of Japan, the US is a far greater preoccupation than China. The US is Japan's security shield and its major trading partner. China is still only a potential power, in Japanese eyes, even though Peking already plays an important role in world affairs.

But as China's close neighbor, the Japanese cannot fail to be affected by what goes on in that vast land, and Tokyo has made a conscious decision to assist Peking's ambitious modernization program to the best of its ability. It is allocating $200 million to $300 million per year in development loans - the largest bilateral aid China is receiving from any country. Japan also contributes heavily to the World Bank and other international sources from which China receives aid.

When Americans look across the Pacific to China and Japan, their major question about China is whether the modernization program will succeed.

Toward Japan their questions are blunter. They ask what is being done about the $19 billion surplus Japan enjoyed in its trade with the US last year, and how much of the burden of defending their country from the Soviet Union the Japanese are willing to take up.

From the Japanese viewpoint, the demands being made on them today, not only from the US but from developed and developing countries alike, are qualitatively different from those they were accustomed to dealing with during their century-long effort to ''catch up with the West.''

First of all, Japan has long since caught up. It is no longer the star pupil of the West. It has the third largest economy in the world.

Second, in its own eyes, politically and economically, Japan is part of the Western alliance, not a non-Westerner still hesitating about which way to go.

Occasionally a Western observer will suggest that, if pushed to the wall, Japan will have to choose between China and the US. But in Japanese eyes the choice has already been made. Japan is part of the West, and seeks to be friends with China from within this framework. If, by some unhappy circumstance, China were to be estranged from the West, and particularly from the US, as it was during the 1950s and '60s, Japan would reluctantly but firmly be on the American side, as it was earlier, even though it would do its utmost, as it did then, to limit the damage and retain some ties with China.

As for the larger question - what Japan is to do now that it has ''caught up'' with the West - most Japanese recognize that they must take up a fair share of the burden of running the global community.

During the upper house election campaign in June, Mr. Nakasone made speech after speech calling on voters to recognize their country's new economic position and to accept the responsibilities implicit therein. These speeches were well received, and the ruling Liberal-Democrats chalked up a satisfying though not overwhelming victory.

In his most recent policy speech, made to the Diet (parliament) Sept. 10, Premier Nakasone referred to the Soviet downing of a Korean airliner Sept. 1 as ''an affront to humanity'' and as ''unforgivable.'' He called relations with the US ''the cornerstone of Japan's foreign policy,'' while promising a ''tenacious dialogue'' with Moscow to establish ''a stable relationship.''

''We cannot become a truly international state,'' he said in a passage which he has made a kind of a theme song, ''unless we not only internationalize our economy but also make further progress in playing a positive global role culturally and politically.'' He called upon his countrymen ''to harmonize with the rest of the world culturally and politically and to acquire a dimension of international universality.''

Mr. Nakasone has also made a good impression on congressmen and on officials during his two visits to Washington. Here at last, some of them said, was a Japanese premier who was not vague, who did not beat about the bush, who was willing to speak out forthrightly on the two subjects of greatest concern to Americans - defense and trade frictions. Nakasone needs to make good on promises

But the time is approaching for Mr. Nakasone to deliver on his promises. He must beef up Japanese defense. He must open Japan's doors to more imports from the US, especially in the sensitive agricultural field. He must keep cars and other manufactured exports to the US within reasonable bounds at a time when, despite the improving American economy, unemployment remains high.

None of these measures are clear-cut, once-and-for-all actions. If Nakasone increases import quotas for citrus fruit, someone else is certain to ask for greater access for his product. If he braves domestic opposition to set defense spending at 6.88 percent above next year (as in fact he has done), the Pentagon is sure to ask for more.

President Reagan is planning to visit Japan in November, and the whole machinery of Japanese bureaucracy is already deeply engaged in debating what ''presents'' should be prepared to sweeten the atmosphere of the occasion.

If a few more Japanese concessions in the trade area, if another couple of percentage points increase in defense expenditure would suffice to satisfy Washington, the Japanese would breathe easier. But they sense that this time the demands being made upon them are qualitatively different.

On the trade front, for instance, Japan's industrial policy has been a subject for study and debate in the US. Loosely speaking, Americans seem to consider industrial policy as a set of plans jointly embarked upon by government and industry for the greater glory of Japan. Is this reprehensible? Or should the US try to do likewise?

On defense, American officials now stress that it was former Premier Zenko Suzuki himself who during a visit to Washington several years ago volunteered a commitment to defend sea lines of communication up to a distance of 1,000 nautical miles from Japan's shores.

''We weren't the ones who asked Japan,'' Pentagon sources say. ''What we want to know is, how does Japan propose to fulfill its pledge? How many new F-15 Eagle fighters, how many P3-C Orion anti-submarine planes will it acquire? And how soon?''

These are the specifics that interest the Pentagon, not general statements about whether Japan's defense expenditures should remain at 0.9 percent of gross national product or whether they should reach 1.2 percent or even 1.5 percent.

Many of Japan's defense experts have long advocated a defense buildup geared not to ''keeping the Americans happy'' but to making Japan's defense forces a more credible deterrent. Year after year, Japan's Defense Agency has asked for newer, better, more expensive equipment - the request for F-15s being a case in point. But the defense budget as a whole is always so tight that little is left for ammunition, missiles, hardened hangars, and the like.

These are the unglamorous items which add up to readiness and to ability to maintain an offensive or to withstand prolonged attack in combat. Can forces without such readiness and sustainability be considered a credible deterrent? Can Japan change its defense posture?

The arguments about front-line equipment vs. sustainability are not new, but they go to the heart of Japan's defense problem: in the age of the MX missile and the SS-20, what does a nonnuclear power like Japan do? Today Japan must rely on the US not only for its nuclear umbrella but also for conventional offensive capability once a conflict begins.

Can it change this posture? Is it desirable to do so? What order of priority should defense be assigned in a period of all-around financial stringency?

As for trade frictions, they have now reached the point where the Japanese feel they are being asked to change the very nature of their own society: ''Don't work so hard''; ''Don't be so group-oriented''; ''Don't cooperate so closely among government, business, and labor.''

That, to many Japanese, is what the West Europeans and the Americans are telling them. The instinctive reply is to ask how their crowded, resource-poor village can survive if they do otherwise. The growth of the Japanese economy has been accompanied by a revival of nationalism, and inhabitants of the village called Japan are increasingly reluctant to take their Western critics' arguments lying down.

They know, also, that mutual recriminations will not solve the problem. Intellectually, particularly since the oil crisis of 1973, the Japanese know that the global community is itself one village, that no householder therein can hope to live sufficient unto himself. They are aware that for the Japanese to prosper, when they have become one of the richest householders within the community, they must interact vigorously with all the others and be seen to be promoting the interests of all. Some Japanese realize this is no time to be responding with narrow nationalism to the increasingly strident demands of others.

A century and a half ago, the Japanese hardly thought of themselves as a nation, certainly not in the modern sense. Their four islands were still ruled by the shogun, a feudal overlord ruling over other feudal lords, each in his own fiefdom. Each lord had the power of life and death over his subjects, and for an ordinary citizen to get permission to move from one fiefdom to another was infinitely more difficult than obtaining a passport to go abroad today.

A ''country,'' in those days, was not Japan itself but the tiny little fiefdom in which a farmer or a merchant had happened to be born. Feudal Japan was isolated from the world until 1853, when Commodore Matthew Perry appeared in his ''black ships'' off Shimoda with a message to the shogun from President Millard Fillmore. For 200 years before Perry's arrival, any Japanese caught trying to smuggle himself abroad was executed, as was any Japanese foolhardy enough to return to his country once he had gone overseas. Japan faces difficult questions

Now, in the late 20th century, every Japanese knows just how to behave within his own village. But he has few guideposts arising from his own experience when it comes to dealing with other villages whose rules may be different from his own. So, although Japan imports the raw materials it needs and exports the goods it manufactures all across the world, in the main the country depended for many years on trading companies, with experts trained in foreign languages and in doing business abroad, to handle the necessary negotiations with others.

But as experienced as the trading companies are, today Japan's operations touch and interact with other countries in so many different fields that it is impossible for specialists to handle them all. These specialists can no longer hold the world at arm's length. It is the Japanese village itself that is being required to change.

To perceive the whole world as one village requires a certain breadth of vision. To work out the practical details of this vision means to face excruciating choices and perplexities. There is no model to follow, for all the nations of the West, particularly the richest ones, face the same problems, the same contradictions.

So the Japanese are groping and searching. They are beginning to ask painful questions about their own society, their own village. It is a lonely search, because no other nation, East or West, finds itself in quite the same position as Japan. To some extent the Japanese have had to jump out of their own original skins to become honorary Westerners.

And, as individuals who are born of international marriages often ask themselves, ''Who am I?'' so the Japanese ask with increasing urgency who and what they are and what is their proper role in the world. The old, pat answer - that there was a Japanese soul which could absorb all manner of foreign influences without losing its essence - no longer satisfies, for the Japanese soul itself is in flux.

Mankind's deepest instinct is to live on, whatever the circumstances, and the Japanese have endured heretofore because they possessed this instinct in abundance. The challenge they face today is to apply the intelligence and energy they have till now single-mindedly devoted to a bigger and better Japan to the survival and prosperity of a community that embraces the world.

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