After the day's lessons ended on Thursday, Vilela Garcia threw a traditional Brazilian Christmas party for the 30 children in his class at the Escola Benedito. Yesterday, the school - whose pupils are drawn from the the 19,000-strong Brazilian population that calls Hamamatsu home - closed its doors for the last time.

“It came to that moment in the academic year when we were about to order new textbooks to be sent over from Brazil for 2009, and we asked how many of the students thought that they would still be living here in Japan in January,” Mr Benedito said. “Their parents all work for the auto industry and so the children just looked blank.”

A short walk away from the school, on the steps of the local “Hello Job” employment centre, a mix of young Brazilians and Japanese are giving up for the day in despair.

One or two are in tears; others walk away in dazed silence; some bellow orders down mobile phones, organising a hurried, unhappy return to São Paolo. Just eight months ago, says a recently laid-off car-seat upholsterer, this was a city troubled by a shortage of workers, not lack of work.

But the global financial crisis has swept into the central Japanese industrial hub of Hamamatsu with formidable speed and destructiveness.

The pristine streets, low crime levels and busy city centre have virtually nothing in common with their ravaged, foreclosed equivalents in Michigan, but Hamamatsu has a good claim to being the “Detroit of Japan” and the two cities now share at least one terrible pain: the world has stopped buying their products.

This is the town where Japan began to make some of the world's finest pianos and electronics. For decades it was the spiritual home of Japanese engineering and craftsmanship, but the much-dreaded “hollowing out” of Japanese industry appears to be starting right here in Hamamatsu. Companies have begun turfing temporary workers out of their dormitories with a ruthlessness that has stunned middle Japan. Unions, after decades of timid acquiescence, are rediscovering their bile.

The important car and component factories based in Hamamatsu - Honda and Suzuki dominate the area - have already begun substantial layoffs. Redundancies are expected to spiral through the support industries of carmaking as the crisis deepens, and will hit other regions where both industry and large Brazilian populations abound: Toyota's home base of Nagoya has started to experience the same withdrawal symptoms as demand for cars collapses around the world.

When the car factories in Hamamatsu retrench, it is bad news for everyone from Shizuoka Bank to the manager of Presentes Express, the local Brazilian toyshop, which stood completely devoid of customers a week before Christmas.

In keeping with traditional Japanese corporate practice, the sackings have hit the temporary workers hardest, pummelling the Brazilian community. Many, within hours of losing their jobs, have been thrown out of company-subsidised housing. Those that can afford the flights back to Brazil have already begun the exodus; the majority that cannot have begun squeezing entire families into tiny rooms in apartment blocks on the outskirts of town.

And the impact will be felt across the city. Evaristo Higa, a priest at the main Catholic church of Hamamatsu, saw a critical change take place among the Brazilian population about eight years ago: they started to believe that the Japanese “carmaking miracle” would dominate the world and to believe that they would always have a share in its success.

“Before 2000, the Brazilians would come here, work hard and send their money home to their families. For the last eight years, they have brought their families over to Japan and put down roots. They have 30-year mortgages and car payments, and suddenly, the jobs have vanished and nobody knows what to do,” he said.

Japan's relationship with its Brazilian communities is fraught with allegations of discrimination and unfair practices. The big car companies claim to have only a few hundred non-Japanese employees at their factories, though it is well known that without the Brazilians, not a single car would roll out of them.

Having largely ignored its 300,000-strong Brazilian population, Japan is now paying their plight much attention. In the past, Japanese workers might have assumed that the Brazilians would bear the brunt of a recession: this time, everyone knows they are merely the first wave.

Last weekend, a union of mainly Japanese-Brazilian foreign workers marched through the streets of central Hamamatsu, demanding that the cuts be spread more evenly among both temporary and permanent workers.

Those demands are unlikely to be met. In a year-end round table event at which he slammed the Government for not intervening to weaken the yen, Takeo Fukui, Honda's president, sent chills through the industrial heartlands of Japan by warning: “If things do not change, the number of temporary jobs will fall to around zero.”

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive