How to celebrate Japanese Birthday

We are hosting a Japanese exchange student, and today is her 16th birthday. What are the customs and traditions for this occasion? What are some gift ideas and decorating ideas?

Why would you do that? I'm going to Japan soon... and if I was to celebrate anything there, I would like to do it in the local fashion. I'm not going 10000 miles away so that I could do things the same way I do them back home. Thus, before I'd do something like that, I would be quite sure that he is as xenophobic as the stereotype goes, otherwise I'm sure he'd appreciate more to experience the local customs. Which you don't have to research. Win-win. And, hint: not many xenophobes become exchange students.
The only other exception I can think of is if he's been there for a long time already, and is feeling homesick.

Yeah. Give her a proper western birthday party.

how do you celebrate a b-day as a nihonjin does?

People don't really have big birthday parties like they do in the west. If you want to celebrate a birthday as nihonjin does, then just ignore the day. haha
there are no special unique japanese customs for birthdays that I know of.
sometimes I am at a party (ie. for work - a staff party or something) and it happens to be someone's birthday (but that's not the reason for the party) so they bring out a cake and sing happy birthday (in English) and have them blow out the candles.

Nowadays, it's somewaht like the West--a nice dinner or outing & a present.

The traditional way to celebrate a birthday in Japan for many families was... not at all. My husband's family don't give each other gifts or cards, or even call each other on their birthdays as his father considered birthday celebrations a western import and only for small children. Same with Mother's Day, Father's Day and Christmas- they don't do anything special at all.

Just don't give her pretty flowers. I did that to one of my Japanese friends when I first lived in Japan. Her reply was, aren't these for the dead?

To Ron,

I think it was the "type of flowers" that led to her reaction, not the fact that it was just "flowers." Nothing is wrong with flowers in general.