Since 1983, technological advances and market growth of inverter- driven variable-speed heat pumps in Japan have been dramatic. The high level of market penetration was promoted by a combination of political, economic, and trade policies in Japan. A unique environment was created in which the leading domestic industries-- microprocessor manufacturing, compressors for air conditioning and refrigerators, and power electronic devices--were able to direct the development and market success of inverter-driven heat pumps. As a result, leading US variable-speed heat pump manufacturers should expect a challenge from the Japanese producers of power devices and microprocessors. Because of the vertically-integrated production structure in Japan, in contrast to the out-sourcing culture of the United States, price competition at the component level (such as inverters, sensors, and controls) may impact the structure of the industry more severely than final product sales. 54 refs., 47 figs., 1 tab.