I've seen Japan very strong - I shared a medium-sized island with Japan, and in Middle Ages Japan declared war on me. I was wiped out by waves of Samurai.
But in my current game Japan's the weakest civ. I played as French, and share a large island (accounts for 60% of land on the whole map) with Japan, Germany, Greece and India (what a crowdy island!).
I dominated the north and central sections of the island. I found Japan very early, and at that time, Japan has only 1 city (Kyoto). I expanded quickly, and found Germany to the south, and Greece to southeast. I stopped expanding then... as I already had serious corruption. I just filled in the gaps after that.
There were enough room for Japan to expand, but it didn't. I don't know why. It was not trapped in very bad terrain... it got some jungles, a few flood plains and desert, some forest and hills, plus a river. Can't remember clearly about resources, but it had horse and iron. Before I went into Middle Ages, Japan expanded to 3 cities (while other AI civs had about 10). It didn't even send workers out to build roads! It's captial remains unconnected to its other cities.
Then I found India... who was connected to the island by a 4 square-wide land bridge to my southwest and west of Germany. It is much stronger than the other 3 civs. India challenged me by move its settlers and pikemen into my borders again and again. So I waged war against Gandhi - but not directly. I didn't want India's cities... they're too far away, and my civ was already too large. So I bribed Germany, Greece and Japan into war with India, with a small price of some dead-end tech (and the Wonders were already built by me).
India fought back. Germany defended itself well, and Greece was out of Gandhi's reach. Poor Japan. One of its city was razed, and Kyoto captured. So I quickly sent out some Cavalries to Japan's aid. I recaptured Kyoto and handed it over to Japan.
The war soon ended as civil disorder went out of control in India. But after that Japan never recovered - it rebuilt the razed city, but that's all. It still didn't send out workers to build roads, and its captial remains unconnected - so to this day (16xxAD) I still cannot trade resources to Japan.
I don't know what Japan's AI is thinking.