A man dressed in black spoke on the video with a British accent. The video was posted online Tuesday and the man said unless his group was paid $200 million within 72 hours, the two men would be executed.
The men are kneeling beside the black glad male who hides behind a mask covering his face, with desert tundra as a backdrop.
Shinzo Abe the Prime Minister of Japan, who is in the Middle East, was defiant only hours after the release of the video. He issued a strong demand to have the men released.
In Jerusalem, Abe told reporters that the demand for ransom in exchange for the lives of hostages was unforgivable. He added that Japan would never give in to these terrorist threats.
Although asked repeatedly by reporters whether Japan would be willing to negotiate with the group or pay a ransom, Abe declined to say no explicitly.
The video indentifies the two hostages as Kenji Goto a journalist who has reported previously from war torn areas for news broadcasters in Japan.
Last year, Goto assisted the other man, Haruna Yukawa, to get into Iraq, and is now a fellow hostage.
Japan is not amongst the countries that are participating in the international coalition battling the insurgents in both Iraq and Syria.
However, citizens from Japan have previously been killed by militants. The most recent attack was in 2013 when 10 Japanese were killed at a gas plant in Algeria.
The radical militant Islamic State, which is in control of large swathes of land in Iraq and Syria, has killed five hostages – 3 Americans and 2 Britons since August – posting videos with graphic images of the beheadings online.