First, I know all the parties involved. I wasn't there when Matt was accosted twice, and it may have been racism, but there's no way of knowing. It could have been just random crazy people.
Baron's trying to raise his site traffic so he's choosing words which exaggerate the situation further.
Finally, Digg may be worse than Slashdot for commentary. It's a trainwreck reading this stuff.
EDIT: Are some Japanese people racist? Certainly. Are Japanese people on the whole xenophobic? As warrants an island nation with a history of isolation, perhaps. Is there unequal treatment of minorities in Japan? Most definitely. Sad to say that's a human constant around the world. Japan is no better or worse than anywhere else.
One thing about Digg is that people really don't read the article as long as it looks vaguely "about right". They're more interested in jumping the gun and putting forth their own conclusions.
Having said that, there is something brewing within Japan's underbelly if you look at the politicians rising to power, the elevation of status for the Ministry of Defense, and all the geopolitical pressures of China and the always unpredictable N. Korea.
Japan tends to keep things simmering beneath the surface before it explodes and I don't think Matt's impression is totally off. They are cracking down on foreigners more than ever and I think we'll start seeing more of this.
That's just my opinion.
As much as I'm all against racism, it seems like a stretch to make statements about being a victim of growing Japanese racism because two Japanese people were jerks to you. I stand by my sarcastic comment on that digg thread (which has received many positive votes):
http://www.digg.com/world_news/An_American_s_Sudden_Brush_With_Japanese_Racism#c5369039
"A Japanese person was a jerk to him? Oh my god, it MUST be racism."
That being said, I still think that Digg is a fraud of a site. If that same link had been submitted by another user, it would have sank into obscurity. However, the user that submitted it has a "friends" list so long that it goes 33 pages the last time I checked, which pretty much guarantees that his/her submissions will be popular. Far too often great links are never given the attention they deserve because one of the "super users" didn't submit them.