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I have heard, but cannot find any information on it, that co.jp domains have to hosted in Japan. Is this correct?
The company has an office in Japan, but wants to for cost and convience reasons host overseas.
.co.jp names don't only require a local address, but a certain verifiable level of incorporation in Japan. You can only get one .co.jp name per registered company.
I do not recall, nor did I see any reference to hosting regulations when I recently skimmed through the old regulations for .co.jp domains. I don't see what the purpose of requiring hosting in a certain country would be. I'm pretty sure you can host wherever you like.
incorporated with official registration in Japan.