Machine Translation and OCR
This isn't an area in which rapid progress is occurring, so the Legacy FAQ file attached is still worth reading in depth. If you are hoping for some whizzo software that will, for instance scan your Japanese manga and translate them into perfect English, it just ain't so.
There is OCR software for professional use (e.g. ABBYY Finereader 10 Asian, or Iris Readiris 12 Asian, with professional prices), but no freeware, except for the WeOCR in beta, which you might like to experiment with. I experimented with the commercial KanjiScan program from Neocor some years ago and found its performance on manga a disappointment. It was little advance on typing in by hand.
For typing in Japanese, there are many programs in the Japanese Wordprocessor category, which allow you to type hiragana and katakana, and look up kanji characters for entry, and translate words. Some of them, like JWPce by Glen Rosenthal, are free. Entering kanji characters is the awkward part, even with the various aids provided.
Once your Japanese text is rendered into electronic form there are several options for turning it into English. You can cut and paste it into a free Web translator, or use a paid-for desktop program. I have experimented with the Web translators, and also with "L&H Power Translator Pro 7", a descendant of the Neocor Typhoon/Tsunami suites, and currently superseded by a product in Systran's "Home" range. All these products work best on full grammatically correct sentences, and work poorly on idiomatic manga script. On the manga sample I tried in Sept 2010, they were no better than a word-by-word translation using the JWPce dictionary.