Hanyu, who hopes to become the first man in 66 years to win back-to-back Olympic golds at next year's Pyeongchang Winter Olympics, fell to the ice while attempting a quadruple lutz in practice for the NHK Trophy on Thursday.
Video of the fall showed him favouring his right leg as he got up and he did not take part in practice on Friday.
The Japan Skating Federation, which announced Hanyu's withdrawal, said he had injured a ligament in his right leg and would now concentrate on treatment. They gave no further details about the injury.
"I am sorry that so many people worried on my behalf," Hanyu said in a statement.
"Since last night the doctors did everything they could so that I could compete, but eventually they decided that I cannot.
"I will concentrate on healing and on preparing for (next month's) Japan Nationals."
Hanyu, who will be 23 next month, landed the jump successfully in his first grand prix event of the season, the Rostelecom Cup in Moscow last month, but finished second overall behind Nathan Chen of the United States.
Hanyu took gold at the Sochi Olympics in 2014 and is also the reigning world champion. He has won the grand prix final for four straight years and was aiming for a fifth victory.
Hanyu's legions of fans took to social media to wish him well.
"Take care, Yuzuru!" wrote one fan on Twitter, saying they were emotionally exhausted after the events of the day. "We'll be here when you get back on the ice!"
(Reporting by Elaine Lies; Editing by Peter Rutherford)
