To qualify for the transitional status, foreign students need to graduate from one of roughly 40 universities including the University of Tokyo and Kyoto University and receive a recommendation from their schools based on their resumes and business plans.
The qualifying schools are part of a government initiative to globalize Japan's universities and help foreign students find jobs. Applications will open shortly.
Foreign students wishing to start a business in Japan are typically required to obtain a new visa as a business manager immediately after graduation or go home. But that visa requires a business to have an office, employ at least two workers and possess at least 5 million yen ($47,800) in capital. This has deterred would-be entrepreneurs.
As a solution, Japan began offering a one-year transition period to foreign graduates in limited parts of Japan in fiscal 2018.
"The program is geographically limited, and one year is still too short a time to start a new business," one critic said.
The Justice Ministry said 560 people transitioned from a student visa to a business manager visa in 2018. Entrepreneurs likely made up only a small portion of that number.
Japanese universities hosted a record high of about 140,000 foreign students as of May 2019, the Japan Student Services Organization said.