Although WP7 can support many characters (we had an email written in Thai read just beautifully), full-on language support is a whole other issue. Microsoft is busy at regionalizing WP7 for Asian markets and we can expect that in the second half of 2011. Until then, developer "kaorun" (Kaoru Nakajima) is in the early stages of bringing Japanese to Windows Phone 7 through his app called FlickPad X2.
The app is distributed via XAP file and he plans to publish it to the Marketplace in the future (whether or not it gets through is another issue). Evidently, you can do email and web searches in Japanese as well as other functions. Seems good to us and we're pretty impressed.
Check out the video after the break to see it in action.