In this paper we propose a novel Bayesian model for unsupervised bilingual character sequence segmentation of corpora for transliteration. The system is based on a Dirichlet process model trained using Bayesian inference through blocked Gibbs sampling implemented using an efficient forward filtering/backward sampling dynamic programming algorithm. The Bayesian approach is able to overcome the overfitting problem inherent in maximum likelihood training. We demonstrate the effectiveness of our Bayesian segmentation by using it to build a translation model for a phrasebased statistical machine translation (SMT) system trained to perform transliteration by monotonic transduction from character sequence to character sequence. The Bayesian segmentation was used to construct a phrase-table and we compared the quality of this phrase-table to one generated in the usual manner by the state-of-the-art GIZA++ word alignment process used in combination with phrase extraction heuristics from the MOSES statistical machine translation system, by using both to perform transliteration generation within an identical framework. In our experiments on English-Japanese data from the NEWS2010 transliteration generation shared task, we used our technique to bilingually co-segment the training corpus. We then derived a phrasetable from the segmentation from the sample at the final iteration of the training procedure, and the resulting phrase-table was used to directly substitute for the phrase-table extracted by using GIZA++/MOSES. The phrase-table resulting from our Bayesian segmentation model was approximately 30% smaller than that produced by the SMT system's training procedure, and gave an increase in transliteration quality measured in terms of both word accuracy and F-score.