Capsule Hotels in Japan - location

I think capsule hotels are one of the best ways for a foreigner to travel around Japan. They do have a few constraints though:
1. They dont offer much in the way of English-language support, and I dont think they want high-manitenance gaijin. Its a very traditional crowd I think.
2. You have limited space for storage. Basically your sleeping area is open so you dont have storage space there. You get one elongate, school-type locker in the bath area. This is not terribly secure, but I have never had a problem. I have often stored a locked case on ground floor in the office storage area, and this has been fine, though not always secure. i.e. They have left the door open. They did not mind me taking things out daily for overnight stays.
3. They dont really suit more than 2 night stays.
4. I am not aware of any website which provides a list of capsule hotels in Japan, and since they are advertised in Japanese, they are not always easy to find. Your best chance is going to a youth-entertainment district in a major city and asking people. I dont know the Japanese name, but they will know enough English.

I have stayed at capsule hotels in the Tenjin district of Fukuoka (Green Cell?), Nagoya (near JR station), Tokyo (near Prince Hotel, Shinjuku) and Hiroshima. Could not find anything in Osaka, though I'm sure they are there. I literally couldn't find anything, so I dislike the place to this day. Ok, not literally. They tend to be around the Y3500-4500/night. The value is the hot bath before and after a night out. Dont forget you save on transport too (Y300+). Sometimes they have a discount for the 2nd night.
As indicated they dont stand out very well. They dont have signs saying 'capsule hotel'. Just a lot of Japanese garb. Ask people. If you have trouble storing your bags, maybe you should use a locker at the station overnight, and recover your things the next morning. But as indicated, I never had a problem storing or accessing a lockup case.
For more info see http://en.wikipedia.org/wiki/Capsule_hotel and Osaka Capsule Hotels (paradoxically I found this list) and here for pictures of a capsule hotel.
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Andrew Sheldon www.sheldonthinks.com

Capsule Hotels vs Youth Hostels

Another great way to travel around Japan on the cheap is by staying at youth hostels. My experiences with youth hostels has mostly been in other countries, eg. Canada, NZ, Australia. In fact I have only stayed at a youth hostel once in Japan and that was in Nagoya. The reason I didn't like it was because this place has a 11pm curfew, so after clubbing until 2AM in the morning, I was unable to go to bed. Instead I was forced to walk around the city for 3 hours to keep warm. I dont know why I was unaware of the curfew. Maybe such information was in Japanese or staff neglected to tell me. Can't recall.

Youth Hostels are a cheap option and I would recommend them, particularly in the smaller cities and countryside where ryokans tend to be expensive and capsule hotels are absent. See www.jyh.or.jp/english/index.html for more information. I prefer capsule hotels in the city because I love a hot bath before and after going out, and also they have the advantage of being 24 hours and they are conveniently located close to entertainment areas (bars) in the cities, so I dont need to get an expensive taxi. Capsule hotels are similarly priced to youth hostels.

I guess both options should be tried as an experience. Capsule hotels are really only suitable for single men. There are a few I believe that cater to women, but they are rare. There are no private baths to my knowledge, so be prepared to flaunt you penis. I'm sure you'll put on a great show. The towels don't offer much shelter if you are not well endowed. But rest assured there will not be any Japanese walking around laughing at you in any language you understand. :)