1. Pressing case for reduction of personnel - I.e. Prove you will go out of business unless you fire people.
2. Means of last resort - I.e. all other means for cost reduction has been exhausted.
3. The candidate for dismissal has been chosen fairly.
4. Correct procedure has been followed.
Now, like anything legal in Japan, the law has more holes than bullet ridden Swiss cheese, the government will basically use this to reserve the right to make an example out of anyone who is using dismissal of people as a management tool.
There are few areas where the rules are applied less stringently than others. First, all this does not apply to temps and contractors. This is why it is considered to be one of the privileged to be employed full time. Secondly, small businesses are policed much lightly. Thirdly, those in higher pay grades can be let go more easily. The rule is meant to protect the meek.
It's a massive drag if you are running a company since you get basically a cadre of lifers that has little knowledge of how things work out there in the market. Such people are also typically resistant to newcomers so the job market as a whole stagnates. So does your businesses ability to innovate. But it also makes people more conformist and obedient.
But if you are a full time employee in a big company, competent or not, you are pretty much set up for life. Ambition is an expensive luxury.