Why do people wear surgical masks in Japan?

Most usually in the winter, it is to prevent spreading colds and to prevent from catching colds. In the spring, it is more to combat hay fever. (The theory is that if you're wearing a surgical mask, then pollen won't come into your system.) Recently, it is to prevent from contracting H1N1.

To prevent spreading the cold or what ever sickness they have

I unequivically detest those things, but I have been forced to wear them at work austensibly to prevent the spread of disease. In particular Japan has been going nuts over the whole H1N1 thing. I am sceptical about how well this actually works, but that is the reason.

It's normally to prevent viruses or pollens from having easy access to the person's body. Currently of course it's mostly for the H1N1 flu, but it's already been proved ineffective. When the new flu started spreading around the world, Japanese people used masks to prevent getting infected. But it spread just as fast here as in other countries where no normal person would wear a mask in public, so it obviously isn't working.

air pollution

pretty much like what everyone else is saying, they use them to prevent from spreading a virus they may have.

its for a fashion statement.

it helps keep their mouths covered

they use them to prevent sickness. They use it to protect themselves from Pollen and other bacterium. Usually worn in winter months.