After nearly a decade of rapid development, woody biomass has been widely used in Japan for power generation and heating. However, it has faced bottlenecks in recent years, leading to a decline in its popularity. This study aimed to elucidate the current status of woody biomass utilization in Japan by reviewing relevant research papers on upstream resource supply and downstream case studies in the supply chain. The supply potential of woody biomass estimated by reviewed articles ranges from 1.2 to 5.5 m3/year/ha, yet a significant portion of this potential cannot be exploited. The utilization of government subsidies, mechanization, and aggregated forests can substantially enhance the availability. The utilization of woody biomass has garnered widespread attention from the Japanese government and private enterprises, presenting an economic impact ranging from 66 to 249 million JPY/t, along with a GHG emission reduction spanning from −17.29 to 202.44 kg-CO2eq/GJ. However, balancing cost and scale remains the primary challenge facing woody biomass utilization in Japan.