If it's just a U.S. CD and artwork with Japanese obi and insert added in, it might be somewhat/quasi legal. Through the 90s many large CD retailers would sell both Japanese and import copies of the same CD, with the Japanese one nearly always the more expensive one. Many would therefore buy the cheaper import version, foregoing the Japanese extras like bonus tracks and/or liner notes.
Whether adding an obi and insert to an import crosses the line to illegality/counterfeit status, I'm not sure, but there are other cases of this. One that springs to mind is some of the Peel Sessions CDs made in Britain (with the grey sleeves). Some were imported to Japan and sold with a bright yellow wraparound obi and liner notes in Japanese.