It does. But there's a catch. Taken from our trivia section:
While the European version of Shenmue II comes with Japanese dialogue and English subtitles, It does not recognize the save game from the American version of Shenmue, thus spoiling the experience for importers since much of the game’s subtleties comes from exported data over the first game.
Contributed by Juan Pablo Bouquet (48) on Oct 06, 2003.