The NPO sector in Japan has seen a rapid development in the last ten years. This paper aims to provide an account of this phenomenon and to point out current problems and issues for the future. The paper discusses legal and policy contexts of the NPO sector, which have been unfavourable to its development. It describes recent changes helping the development of the sector, including the new legislation on the Promotion of Specified Nonprofit Activities. The paper argues that for a further expansion of the sector, issues related to financing and management need to be addressed.