Taking advantage of large samples from the 2000 census, this paper attempts (1) to identify the salient features of the 1995–2000 interprefectural migration of foreign residents in Japan; and (2) to carry out a multivariate explanation of this migration process by using a nested logit model which consists of a departure submodel at the upper level and a destination choice submodel at the lower level. Our main findings are as follows. Firstly, the migration process differed markedly between foreign residents and native Japanese. Secondly, the interprefectural migration process of the foreign residents was highly selective with respect to both ethnicity and educational attainment. Thirdly, the effects of labour‐market factors, co‐ethnic attraction and marital opportunities in the destination choice submodel conformed to expectations. Finally, the strong displacement effect of new immigrants in the departure submodel suggests that the foreign residents were competing with each other for rather limited economic opportunities in Japan. Copyright © 2009 John Wiley & Sons, Ltd.