Is he saying that Japan should retreat into a protectionist cocoon?

This is hardly the only alternative to following US inspired Neo-Classical Economic policies.  Sounds to me as though he wants to work towards a more egalitarian society and one that is, to the extent possible, respectful of tradition.  Not every society has to be thrown whole into the wood chipper of unrestrained market capitalism in the benefit of Wall Street and London elites, only to emerge as isolated, alienated manipulable "rational actor" wood chips.

The USA could use such a leader as Hatoyama, if you have any to spare.  I applaud him and his apparent victory and wish him, his party and country well.  Good news from one country, at least.

"It is not necessary to have hope in order to persevere."