Talking about the size of living space in a discussion of free marking housing costs is irrelevant. The only fact that matters is cost per unit area, the free market will decide how much area people are willing to pay for (assuming, of course, that there is a free market that is able to construct smaller or larger living spaces. Japan has one of these, whereas the United States typically does not thanks to most municipalities' zoning law)

In Tokyo, land is extraordinarily expensive but living space is only ordinarily expensive (and not nearly as expensive as many US cities). As a consequence, a quick google search[0] suggests that a new single family home in Tokyo's 23 wards will cost you $600,000 with about 1051 square feet of living space, or roughly $600 per square foot, and in the distant suburbs (with long train commutes, an hour minimum but maybe 90 minutes or more to shinjuku. would be fine for a remote worker though) you can get a house for around $400,000 although this article regrettably does not mention if these houses are the same size on average or not (so $400 per square foot or less, not quite sure).

In terms of the urban form of the streetscape, expensive land coupled with the fact that you can legally subdivide your land, means that houses are very crammed together with almost no space in between in major cities, and especially in Tokyo. That said it's a free market - there are larger lots you can buy, and if you really want a big property I'm sure you could buy neighboring lots and combine them somehow (demolition of existing properties is normal anyways - if you really want a buffer from your neighbors, build a house that's smaller than your lot size!). In contrast, most municipalities in the US mandate a certain space between houses and/or require getting special zoning board approval to subdivide your lot, which means that there's essentially a "minimum" lot size, which turns into a minimum house cost of (minimum lot size * land price).

Additionally there will always be concerns about standard of living. IMO Japanese homes are, in some ways better, but in many ways worse, standard of living than American homes. For example, my impression is that the HVAC situation is typically much worse than the standard american home (although where I live in boston the "AC" is usually nonexistant since most homes are 100+ years old, but atleast the heating is good). On the other hand, Japanese bathrooms are a godsend, if you haven't experienced it you don't know. The biggest concern to me is the sound insulation, which can be poor in many cheap wood-framed Japanese homes (true in many cheap new construction American homes too, as well as some older American constructions. It always depends I suppose! But atleast in sprawling american suburbs you don't hear your neighbor as often through those walls because houses are spread out enough.)

Finally, as a note, while all the above is talking about Tokyo and it's suburbs, there are other big booming cities in Japan (Osaka is popular) which are often 30% or more cheaper but with many of the same big-city amenities like transit, walkability, restaurants and culture, and so on. In terms of price, Tokyo really is like the NYC of Japan, but it's actually affordable for the average family, albeit with either a small home or a long commute.

TL;DR : in Tokyo, land is really expensive, living space is moderately expensive, the free market has converged to fairly small living spaces relative to the US. In the rest of Japan (and distant suburbs to Tokyo), land is moderately expensive and living space is fairly cheap.

[0] https://resources.realestate.co.jp/buy/how-much-does-it-cost...

Addendum: to someone interested in suburban/rural housing in Japan, there's a youtube channel TokyoLlama with a series on his purchasing one of those abandoned houses in a distant tokyo suburb, about 50 minutes out of the city by train. It's an old, beautiful, artisan wood house. At some point in the series he covers all the costs associated with buying the house, as well as various costs and effort to renovate it and make it livable.[1]

[1] https://www.youtube.com/c/TokyoLlama/videos