Japanese speakers would not confuse "fukyu" with "F**k You" because the word is made up of the characters for "fu" and "kyu". While the English phrase "F**k You" is famous in Japan, people would not separate "fukyu" into "fuk yu". English (or, here, English and French) speakers, however, probably would—hence the complaints!
According to LF Press, the sushi bar's owner wanted something "catchy and Japanese". The restaurant opened earlier this year, but other tenants began complaining about the provocative sign. The landlord filed a lawsuit, and the recently recently ordered that the sign be covered.
Maybe the sushi bar owner can open a noodle shop and call it "Bukkake". Pretty sure the other tenants would be totally cool with that.