Japan has both a tax treaty and a totalization agreement — so the credit usually beats the exclusion.

With an effective rate well above the US equivalent, Form 1116 normally leaves you with excess credits to carry forward, and it keeps your income counted as compensation — which matters if you want to fund an IRA. The exclusion would remove the income and the ability to contribute with it.

Inhabitant tax is assessed on the previous year's income and billed in the following June, which puts the payment in a different US tax year from the income it relates to. Getting the timing right on Form 1116 is where Japanese returns most often go wrong.

The totalization agreement means you generally pay into one system rather than both. For a self-employed American covered by Japanese pension insurance, that removes the 15.3% SECA charge — but it needs a certificate of coverage, not an assumption.

A NISA is tax-free under Japanese law and nothing in the treaty extends that to the United States. The income inside is US taxable year by year, and the funds usually held in one are PFICs — Form 8621, and a default calculation that taxes a disposal at the highest ordinary rate for every year the holding was owned, with interest on top.

Leaving Japan after paying into the pension system, you can claim a lump-sum withdrawal payment, paid net of Japanese withholding. It is a pension distribution on the US side rather than excluded wages, and the periods refunded stop counting toward Japanese benefits — a decision worth taking deliberately rather than at the airport.