You can drive on an International Driver's License in Japan. However, if you want to live in Japan, the right to drive on an International License only lasts for one year (even if you renew your International Driver's License). After that, you must get a Japanese Driver's License. Depending on where you are from this is a difficult thing to do.
The first thing you need to do is get a translation of your driver's license. You must do this at the Japan Automobile Federation office in Utsunomiya. More details at the bottom of this post but basically you just need a copy of your license (front and back) and a copy of your alien registration card (and I think the original). These guys are very helpful. You can do it by post. We went in and it took an hour for 2 translations over lunch.
If you are Australian or Canadian (help me grow this list please) it's now a fairly simple matter of going in to the Driving License Center with the translation, your license, your passport, your Alien Registration Card and a passport photo and you can get a Japanese License. You have to do a written test (which is very easy) and an eye test. If you are from Hong Kong, Brasil, China, Vietnam, USA or Philippines (please help me grow this list) then you have to do a practical test. The practical test is not easy. The two times I have been present when the results have come out the pass rate was respectively about 5% and 3%. I am Australian, but unfortunately, my only current license is from USA so I have to join the second process. It took me two full days to submit my application due to the large number of stamps in my passport. And I had to go home and get an old passport because they wanted to see more travel info than was in my 1 year old passport.
Please don't assume that because you are a good driver you will pass easily. I studied quite heavily and thought I nailed it during the test and my result: 0%. If you want to get your license quickly and smoothly then I suggest spend a few hundred thousand yen (yup 2 or 3 thousand dollars) and go to driving school.
Let me digress here for a second and say that I think the driving in Japan is excellent. I know many will strongly disagree with me here but I think its probably the best in the world (at least that I have seen). Not the best in terms of "how quickly can you enter traffic", "how assertive are you on the road" or "how much like a New York cabbie you drive" but the best in terms of "how calm, relaxed and defensive their driving is". Its a pleasure to drive in Japan. I can understand that Japan would like longer term visitors to their country to drive like this too.
Here is what happens on the day of the test. You have to come in by 9:50 AM to you submit your paperwork (even if its not your first time). You must first pay a 2400 yen at a counter that closes at 10:00AM. Then you all line up and at about 10:30 they inspect your paperwork with you. Then if its your first time they give you an eye test and a written test. You don't need to prepare for the written test. Its very easy. Sample question: "If you come to an intersection and the traffic light is green but there is a policemen there indicating you should stop, is it OK to observe the green light and continue?" The eye test is easy too. At this point on your first attempt you will be given a totally inadequate 4 page pamphlet with some hints for doing the test. You must go to the web for information on how to pass (please post additional resources as comments here and I'll add them to the article). I haven't found a really authoritative reference yet.
At 12:00 you can walk the driving test course. I suggest you print out a map and walk it at least once the first time. Its quite useful to know it. I'll link to resources for passing the test below but on your walk note the location of any lane changes, stop signs, the blind intersection and the pedestrian crossing.
At 1:00 you all assemble in the test center, your name will be called and you have to write your name on a piece of paper and then turn it over. I got off to a bad start when I didn't understand what to do and my tester got visibly angry with me. Note who fills in the name before you. You have to follow them in the test. The guy who supervised you flipping the paper over will be your assessor.
Now just line up and get ready to be tested. You will be a passenger for the person in front of you while they are tested. At the end of the test your tester _might_ give you a hint about why you failed. My hint was that I wasn't far enough to the left or right of the lane before turning left of right (I was aware of this rule and thought I had done it). My wife got no hints and also got 0%. There is no additional feedback on your performance.
At about 3:30 the results are announced and you are free to sign up for the next round of tests if you fail. The calmness and tranquility of the failing attendees is quite shocking. People are clearly learning something from their time in Japan, but its not how to pass the driving test.
I know at least half of my anger about this is just because I am judged to be too poor a driver. I'm also a little bit upset that I can't communicate with the people running the foreign driver license conversion process (and there are enough applicants for them to have dedicated staff). I'm not being fair by being angry about those points. I'm a visitor in this country and I must follow their rules and learn to adapt to their system or get out. But I don't think its right that there is no authoritative reference on how to pass the test, that it takes 6 hours at the center to do the 15 minute test or that information about why I failed is haphazard and incomplete.
My next blog article? "Buying a bicycle in Tochigi" :-(
Hints for passing the driving test
My Beloved Sushi
Looks like the site is being redone. The layout is still a bit screwy, but I think this site has the best information. Get your map here.
This site is not as good, but does contain good info. The map is different in Utsunomiya and I think the fail rate is higher than he says here too.
Japan Automobile Federation - get your license translated here.
Update: On my fifth try I passed the test. More about it here.