Yahoo Japan, which is actually controlled by Softbank, not Yahoo, and has ousted Yahoo CEO Jerry Yang on its board, has spit in the eye of the hard-won Microsoft-Yahoo search alliance, opting instead to go with Google. It said Microsoft's localized search widgetry wasn't good enough.

Unbelievably to many observers, the pair came to the party with a tame regulator in tow.

Japan's Fair Trade Commission basically said Wednesday that it didn't care that the deal would hand the whole of Japanese search to Google because they're "doing search and ad business separately."

The Justice Department told Google it would sue its pants off when it tried a similar deal in the U.S.

It's widely assumed the Japanese authorities just don't understand what's at stake.

Microsoft immediately complained that the deal was "even more anti-competitive than Google's deal with Yahoo in the United States and Canada that the Department of Justice found to be illegal. [That] deal would have locked up 90% of paid search advertising. This deal gives Google virtually 100% of all searches in Japan, both paid and unpaid. It means that there will be no search competition in Japan and that Google will end up controlling all personal search information for all Japanese consumers and businesses." It remains to be seen whether it tries to do anything about it. It's unclear when the arrangement comes into force.

Yahoo Japan currently owns something like 53%-56% of the market to Google's 31%-38% and Microsoft's 3%.

Financial terms behind the two-year arrangement weren't disclosed. Citigroup figures it's worth $100 million a year to Google.

Japan has the third largest Internet audience behind the U.S. and China.