No no, I don't think so. Japanese people tend to make many words shorter and often use a shorter words. The word which mean "foreigner" is "外国人(gai-koku-jin)" correctly, but the pronounce "gaikokujin" is too long for conversation, so people often use the shorter word "gaijin". Mainly there is no racism meaning. For thousands years, Japan island has only japanese people, so most japanese are not used to meeting foreigners. Please forgive us... ^^;

Well, not necessarily. However, people who want to differentiate foreigners from themselves often use "gaijin" intentionally (with bad attitude, as James-san mentions above). "Gaikokujin" is politically correct term and is used in order not to sound offensive/discriminative.

I believe it depends how it's used. When I lived in Japan it was not so much the use of the word which sometimes offended me, but more the attitudes of the people who used it. The overwhelming majority of Japanese have a "them and us" view of the world which many foreigners in Japan find to be close-minded and extremely frustrating.

I'm not offended by the word gaijin, I use it myself too, referring to myself or my other gaijin friends. Sometimes Japanese people too, since to me THEY are gaijin ^^ I agree with all the comments above however, there are people who have negative/narrow minded views about gaijin in Japan. They usually make very wide generalizations, and what you do new falls to the same category you're in. Most of the people I met in the university I did study abroad started to think my personal habits/choices are general truths for people from my country.... And they're university students who study English, not uneducated ignorant people. What I mean is, there are such people and I would find them offensive even when they say "gaikokujin" or "gaikoku no kata" or whatever. But the opposite is also true, I met lots of very open minded Japanese people who used the word "gaijin" but never meant any offense.

外人never mean a racist/offensive in Japan. As Kazma says, it is a only short word of 外国人. It is nothing more than that. It is a person/people from other country(s) or live(s) in other country(s), just the similar way as Japanese people call each other like a 東京人 Tokyo-jin (You are form Tokyo)、大阪人 Osaka-jin (You are from Osaka). And I am called 名古屋人 Nagoya-jin (You are from Nagoya) when I am with people from different places of Japan. I know that there are still some people who especially live isolated area or are uneducated as well as some have grown up by, are narrow minded. They have difficulty to accept new people even Japanese from different places. But that is exceptional. Most Japanese people do not use 外人 for bad meaning.