A health ministry panel on Wednesday called for a ban on smoking indoors in public spaces, including restaurants.
In a report, the Health, Labor and Welfare Ministry linked passive smoking to a range of deadly diseases, saying designated smoking spaces only harbor the problem rather than eliminate it.
Prime Minister Shinzo Abe's government wants to combat passive smoking ahead of the 2020 Tokyo Olympics.
The Tobacco White Paper revises a document that has remained untouched for 15 years.
In the report, the ministry for the first time correlates secondhand smoke with disease at four risk levels and cites data for its analysis.
At Level 1, the highest risk level, it links passive smoking to diseases such as lung cancer, heart attack, cerebral embolism and childhood asthma.
Until now, the ministry has said it prefers a blanket ban in public places, but the report said having designated smoking rooms does not prevent the leakage of cigarette smoke and inflicts passive smoking on cleaning staff.
Japan should "aim at a 100 percent ban on smoking indoors" instead of setting up smoking rooms, the report said.
The report cites a World Health Organization estimate showing secondhand smoking causes around 15,000 deaths annually in Japan, making it one of the worst for inaction on passive smoking.