The word Japan probably comes from Portuguese or Dutch. Sailors, traders and missionaries from Portugal were the first westerners to visit Japan and they were already calling the country 'Zipangu' or "Jipangu" because they had heard the country called 'Jihpenkuo' in northern China. Another theory is that the word comes from the Dutch word "Japan", which is taken from "Yatpun", the name for Japan which is used in southern China. Because the name was given before the days of political correctness, the Portuguese and Dutch had little interest in using the Japanese words, "Nippon" or "Nihon".
http://www3.tky.3web.ne.jp/~edjacob/saq.html