The 62-year-old Franco-Bosnian succeeds Javier Aguirre, who was sacked last month amid fears that Japan's hopes of qualifying for the 2018 World Cup could be hindered by the Mexican's alleged involvement in a match-fixing investigation in Spain.
Halilhodzic had been out of work since leaving Turkish side Trabzonspor in November and his availability is believed to have given him the edge over former Barcelona and Real Madrid playmaker Michael Laudrup and Oswaldo Oliveira who are both employed by clubs in Qatar and Brazil.
The new J-League campaign kicked off last weekend and Japanese Football Association officials had expressed their preference for a foreign candidate who could be in place to oversee the start of domestic action.
Japan play home friendly matches against Tunisia and Uzbekistan later this month before they undertake their first stage of World Cup qualifying in June.
The four-times Asian champions are heavily expected to qualify for their sixth consecutive World Cup.
Former Yugoslavia striker Halilhodzic has plenty of experience at international level and helped Algeria to a last 16 berth at the 2014 World Cup in Brazil where they were beaten by eventual winners Germany.
He also helped Ivory Coast qualify for the 2010 finals but was controversially sacked before the tournament in South Africa.
(Writing by Patrick Johnston in Singapore; editing by Sudipto Ganguly)
