The truth is that Japan is a mixture of all of these things and many more. The best way for a tourist to experience the culture most completely is to forego the large hotel chains and stay instead in a ryokan, or traditional Japanese inn. These inns have numerous advantages over the five-star hotels you'll find around all the train stations. Perhaps most obvious is the more reasonable room charge at ryokan, but there are many other benefits that may be more important to travelers. They include good service, a lot of hospitality with a traditional Japanese "homelike" atmosphere, choice of "with or without meals," a different personality at each inn, and -- perhaps the most important of all depending on your destination -- availability in less-traveled areas.
ROOM CHARGE
Obviously, prices vary greatly depending on location, options chosen, number of people and even the season. For example, ryokan in Hokkaido seem to run a little more expensive than on the main island of Honshu, and in-season rates in Nikko can add from 600-1500 yen per person to a charge. In general however, two people in a Japanese-style room with a bath and dinner/breakfast included can expect to pay between 8,000 and 12,000 yen. (Click here for today's exchange rate.) If that sounds expensive to you, then you are not prepared to travel in Japan! ;^)
Dinner and breakfast are usually included, but some ryokan offer guests options such as with/without meals, private/public bath, Japanese/Western toilet, etc. If you are seeking advice in those areas, I would recommend you take the fully loaded package with the Western toilet. The meals add less to your bill than you would pay for similar fare in town, you can always use the public bath in addition to your private bath whenever you want, and most Westerners absolutely require a Western toilet to be comfortable.
PERSONALITY and HOSPITALITY
Staying at a ryokan puts you in touch with Japanese manners and customs and lets you experience the charms of rural Japan, even in big cities. ryokan are often presented more interestingly than hotels, with traditional landscaping or gorgeous natural scenery. Since ryokan are not chains, each inn is a little different and most have a more personal feel to them than large hotels, much like the Western "Bed and Breakfast." You will interact with the staff much more frequently than at a large hotel, as the maid will not only respond to your requests, but will arrive to bring your dinner, and to clear the plates and set up the futon for the evening. In the morning he or she will clean the room and put away the futon while you are in the dining room having breakfast.
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