I have been living in Japan for over 6 years. Will continue living here for the forseeable future since I just got a job with a Japanese company.
The cost of living is still arguably the highest in the entire world. Real estate prices have come down quite a bit in the last couple of years, but you still have to shell out 25-30 million yen (about 250 thousand $US) for a decent apartment and about 100 million yen (nearly 1 million $US) for a family house in an average suburban neighbourhood.
Starting salaries for fresh graduates are ridiculously low in just about any field compared to the US, I think. A big IT company will pay about 25-30 thousand $US per year to a new employee. No wonder people are paying back housing loans till they die.
Living expenses are not too high now compared to a few years ago, although food does still cost more than in Europe or the US, I believe. One liter of milk is about $1. Vegetables and fruits are way overpriced. An apple (1 piece, not 1kg) can set you back as much as $2, and 3-4 pieces of tomatoes will cost anywhere between $1 and $3. 1.5 liter of Coca Cola is about $1.5. A Big Mac value meal at McDonald's costs about $5. Eating out can be cheap or ridiculously expensive. You can get a decent meal at a roadside restaurant for about $10-12 per person, but a slightly decent restaurant will charge you $50-60 per capita.
<EDIT>Oh, yeah, someone else mentioned that if you like Japanese food you can get away with spending very little. Unfortunately I do not like Japanese cuisine, so I am paying through the nose for bread, meat, cheese etc.</EDIT>
Telecommunications fees are probably the lowest in the world! ADSL is dirt-cheap, Fiber-To-The-Home (100 Mbps) is avaible at acceptable prices, cell-phone rates are super-low.
Electronics equipment probably costs about as much as in the US, maybe 5-10% more.
Hope that helps.
<EDIT>Of course, transportation. You can use the extremely well-developed train network to get just about anywhere, although it is by no means cheap to ride trains. You COULD buy a car, but you would end up paying about $150 per month for parking, and another truckload on insurance. Plus, roads are way overcrowded so prepare to spend a lot of time inching ahead in traffic jams. The cheapest and fastest method of transportation is scooters or motorbikes. A lot of people have 50cc scooters, and they ARE extremely useful, but can also be very dangerous, especially in the Osaka area, where most drivers are incredibly selfish, inconsiderate and even suicidal - running red lights, changing lanes without indicating and ignoring other traffic rules is normal practice here. Riding a bike is about as safe as walking into a mine field. Most of my friends who ride bikes have had at least one accident. I nearly died in one just about two years ago.</EDIT>