Here are two URLs I have bookmarked about the subject. Both agree that colored belts for were introduced in Europe.
- on the "Judo Information Site"; states that "Sensei Mikonosuke Kaiwashi introduced various colored belts in Europe in 1935 when he started to teach judo in Paris".
- on the articles section of "Budo Kai", a web site belonging to Fox Valley Martial Arts. This article is written by the Chief Instructor, Don Cunningham. This is the most complete article about Kano Sensei and belt colors I've stumbled across on the web. Scholarly, with footnotes and everything, and cites personal correspondence with Meik Skoss when speculating about Dr. Kano's reasons for creating the kyu/dan system in the first place.
Interesting observation: the concept of kyu/dan existed before anyone ever wore belts to publicly indicate their rank. Other, non-martial occupations have kyu/dan ranks as well. Go is a good example.