The capsule hotels in Tokyo are yet another example of the Japanese attitude toward efficient use of space.
Capsule hotels offer guests a very small space to sleep at night, along with the use of common bathrooms. The big hotels integrate onsens as well.
They are budget friendly by Tokyo standards, and if you're wondering why a resident might subject himself to such a tight space, consider that it's the perfect solution for workers who might get drunk at a happy hour and not be in a position to return home for the night.
After my less-than-ideal experience at a Japanese onsen in Kyoto, I decided not to go to a big capsule hotel. The reviews I read online made them seem less than desirable, though I suspect part of that had to do with the culture shock foreigners faced when experiencing their first onsen.
Instead, I chose the Ace Inn Shinjuku, which had a whole floor devoted to glorified bunk beds encased in wood paneling, with privacy curtains and external desks.
It was actually rather fun to spend the night there, mostly because I had wi-fi access and could camp out in my little space and not be bothered by whoever else was in the room. It reminded me of the sleepovers I'd had as a kid, where we'd build forts out of couch cushions, blankets, and whatever else we could get our hands on.
The cost was $50 per night. For $10 less per night, I'd stayed at a Lonely Planet recommended boutique hotel in the capital of Laos. But this is Tokyo, where cheap hostel dorm beds start at $40 per night, so I chalked the difference up to a little privacy for my final night in Japan.