Before the Western foreigners arrived, Yokohama was a small fishing village up to the end of the feudal Edo period, when Japan held a policy of national seclusion, having little contact with foreigners.[4] A major turning point in Japanese history happened in 1853–54, when Commodore Matthew Perry arrived just south of Yokohama with a fleet of American warships, demanding that Japan open several ports for commerce, and the Tokugawa shogunate agreed by signing the Treaty of Peace and Amity.[5]

It was initially agreed that one of the ports to be opened to foreign ships would be the bustling town of Kanagawa-juku (in what is now Kanagawa Ward) on the Tōkaidō, a strategic highway that linked Edo to Kyoto and Osaka. However, the Tokugawa shogunate decided that Kanagawa-juku was too close to the Tōkaidō for comfort, and port facilities were instead built across the inlet in the sleepy fishing village of Yokohama. The Port of Yokohama was officially opened on June 2, 1859.[6]

Yokohama quickly became the base of foreign trade in Japan. Foreigners initially occupied the low-lying district of the city called Kannai, residential districts later expanding as the settlement grew to incorporate much of the elevated Yamate district overlooking the city, commonly referred to by English-speaking residents as The Bluff. Under pressure from United States and United Kingdom officials, the Tokugawa government built a commercial sex district which opened on November 10, 1859, with 6 brothels and 200 indentured sex workers.[7]: 68  The area of Yokohama with the highest concentration of brothels was known as Bloodtown.[7]: 67 

Kannai, the foreign trade and commercial district (literally, inside the barrier), was surrounded by a moat, foreign residents enjoying extraterritorial status both within and outside the compound. Interactions with the local population, particularly young samurai, outside the settlement inevitably caused problems; the Namamugi Incident, one of the events that preceded the downfall of the shogunate, took place in what is now Tsurumi Ward in 1862, and prompted the Bombardment of Kagoshima in 1863.

To protect British commercial and diplomatic interests in Yokohama a military garrison was established in 1862. With the growth in trade increasing numbers of Chinese also came to settle in the city.[8] Yokohama was the scene of many notable firsts for Japan including the growing acceptance of western fashion, photography by pioneers such as Felice Beato, Japan's first English language newspaper, the Japan Herald published in 1861 and in 1865 the first ice cream confectionery and beer to be produced in Japan.[9] Recreational sports introduced to Japan by foreign residents in Yokohama included European style horse racing in 1862, cricket in 1863[10] and rugby union in 1866. A great fire destroyed much of the foreign settlement on November 26, 1866, and smallpox was a recurrent public health hazard, but the city continued to grow rapidly – attracting foreigners and Japanese alike.