Kind of an interesting idea, but the idea that straw would be free is kind of strange. The only reason there is so much straw to begin with is that Japanese agriculture is so petroleum-dependent in the first place. No one has to worry about returning the straw nutrients to the soil, because petroleum-based fertilizers will keep the system in balance. There is no way that, given current farming practice, there would be anything like a sustainable volume of biofuel. There would instead be a continuous drain of nutrients from the soil that would eventually lead to sterile farm land.
Why don't they work instead on ending their dependence on oil?
Automotive World - Japan: Government plans low-cost rice straw to biofuel production process