Under current rules dance clubs across the country are supposed to stop people from shaking their stuff once the clock ticks over to 12 am.
The law, which dates from 1948, during the US occupation, was put in place amid concerns that the relatively liberal social attitudes of the Americans were corrupting Japan's youth.
It was also an attempt to curb prostitution, which was rife in the poverty of post-World War II Japan.
Enforcement was considerably relaxed as Japan boomed in the 1960s, 70s and 80s, allowing clubland to thrive in the big cities.
But after decades of turning a blind eye to the clubs, a police crackdown began following the 2010 death of a 22-year-old student after a fight in an Osaka club.
Hit by a wave of raids by police who said they wanted to prevent an "excessively hedonistic atmosphere" at clubs, most of the city's venues were shut down for licensing violations, pulling the plug on Osaka's thriving dance scene.
Advocates of all-night dancing lambasted the rules as out-of-date and hypocritical, especially after the government made hip-hop dancing a regular subject for junior high school students in 2012.
Under the new law, which is expected to take effect by June next year, dancing after midnight will be allowed if the club has a light level of at least 10 lux.
A lux is a measurement of light over a given area, and 10 lux is approximately equivalent to what a movie theatre looks like with the lights on, according to Panasonic.
The new law also makes provision for clubs that do not serve alcohol after midnight to stay open for 24 hours.
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