Astronauts Rick Linnehan and Garrett Reisman began the spacewalk at 01:18 GMT on Friday.
"Spacewalkers have finished preparing the Japanese Logistics Module - Pressurized Section (JLP), the first component of the Japan Aerospace Exploration Agency's Kibo laboratory, for removal from space shuttle Endeavour's payload bay," NASA said on its website.
The JLP will be installed on the station later on Friday.
The astronauts are currently installing "mechanisms on Dextre, the final element of the station's Mobile Servicing System," according to the NASA website.
The current shuttle mission STS-123 is the longest to the ISS and will involve a record five spacewalks.
The shuttle crew comprises Commander Dominic Gorie, Pilot Gregory H. Johnson and Mission Specialists Rick Linnehan, Robert L. Behnken, Mike Foreman, Garrett Reisman and Japanese astronaut Takao Doi.
