July 7th in Japan is not a national holiday. Schools are open, banks and post offices are open, and life goes on as normal. However culturally July 7th is something of a holiday. I guess you can think of it as on the level of Halloween in the U.S., and like Halloween, it is mostly celebrated at night.
There are several Tanabata festivals and fairs all over Japan. People go out to celebrate the two lovers in the stars, divided by the Milky Way who only get to meet once a year.
Orihime was a weaving princess who wove by the bank of a river (the Milky Way). She and Hikoboshi, the cow herder, fall in love and marry. When Orihime’s father sees that the newlyweds, deeply in love, have neglected their weaving and herding duties, he separates them on different sides of the Milky Way, but when he sees how sad his daughter is, he consents to allow the lovers to meet once a year, on Tanabata.
A flock of magpies forms a bridge for the lovers to use to cross the Milky Way, therefore it is said that on rainy Tanabata nights, the magpies don’t come out and the lovers are forced to wait another year.
People also go to temples or shrines and tie little wishes to bamboo on Tanabata, as pictured here.
However one great recent twist to the Tanabata celebrations has been the environmentalist angle taken on them. Several places around Japan, including Hiroshima’s famous Miyajima Shrine, take the star-gazing tradition of Tanabata as a good reason to do a lights-out campaign all over the city.
The program is called “Tanabata Light Down”, and is a national effort to turn off all unnecessary lighting on the evening of Tanabata. The stars will appear brighter, energy will be saved, the Earth will be less globally warmed for a few hours, and all will have a good time. Most places will be turning down the lights around 8pm or sometime after dusk.