Yes in some neighborhoods and villages the roads are so narrow that they can practically only be driven on by Kei cars.

Japan as an Island has limited space available for natural reasons, plus large parts of the country are mountain area. So the old cities have been built in plains and reached high density. Building is strictly regulated.

And that has also grown into the culture. The Japanese sense for efficiency is legendary and so you simply don't waste space. And in general, you don't show off with oversized cars. Understatement is part of the general habitus. Shintoism and Buddhism have deep roots and that certainly plays a role too.