This review critically examines the potential of biomass as a renewable energy source in Japan, a country abundant in forest resources yet facing significant challenges in biomass utilization. Key obstacles include geographical constraints, outdated forest inventories, technological gaps, labor shortages, and high operational costs. Through a systematic literature analysis, the study comprehensively assesses the multifaceted implications of biomass energy on energy security, climate change mitigation, environmental sustainability, and waste management. Adoption of sustainable forest management practices and robust carbon accounting can substantially reduce life-cycle emissions, thereby enhancing the viability of biomass as an energy source. The paper highlights strategic approaches such as pellet production, co-firing biomass with coal, and forest regeneration initiatives as vital pathways toward a low-carbon energy system. Additionally, it explores the role of residual thermal energy from biomass combined heat and power plants in fostering a circular bioeconomy, thereby supporting rural development and resilience. Despite operational barriers including labor deficits and supply chain inefficiencies, the review advocates for targeted investments, comprehensive policy reforms, and cross-sector collaborations to optimize biomass utilization. Finally, future research directions are proposed to enhance biomass harvesting efficiency and diversify feedstock sources, aiming to strengthen Japan’s bioenergy sector for a sustainable future.