The 26-year-old will become Wolves' first ever Japanese player after enjoying an impressive first half-season in European football with Grasshoppers, who Wolves sparked up a 'feeder club' relationship with in 2020.
Kawabe has scored four and assisted three as an attacking midfielder in his 18 appearances in Switzerland, since joining the club from Sanfrecce Hiroshima last summer.
He made his senior Japan debut against South Korea in March 2021, so far making four international appearances in total, and scored his first goal for his country in a World Cup qualifying victory over Tajikistan in June.
Now, the midfielder heads to Molineux on a three-and-a-half-year deal. He will spend January training with Bruno Lage's side as the Swiss Super League is now on their winter break, and he is expected to return to Grasshoppers on loan at the end of the month.
Wolves technical director Scott Sellars said: “Naturally, Hayao is a player we’ve watched a lot and he’s done really well this season.
“He’s an attacking midfield player, very energetic, very busy, and has good quality. He’s really shone at Grasshoppers this year, and he’s one of the main reasons they’re doing so well.
“Due to the GBE criteria for signing international players, Hayao is a player who is eligible to sign for a British club this month, but may not be in the future, which is why we’ve moved now to confirm his signing.
“Hayao will spend January with Bruno’s group while the Swiss Super League is on a winter break, then he’ll likely return to Grasshoppers to finish the season there, as he has been an important player for them so far this season.”
This comes after Wolves defender Toti Gomes returned to the club from Grasshoppers to train this month, before heading back to Switzerland to complete his loan spell.