It strikes me as wild but so much of the opposition towards LGBT rights in Japan is, effectively, a paperwork issue. Backed by bigotry, but fronted by paperwork.
The koseki system, or family registry system, basically cannot handle same-sex couples or parents. The system only allows for one male partner and one female partner, one male parent and one female parent. So Japan can't register same-sex marriages or parents.
But this might also be why sterilisation is required for trans people. Because the requirement for recognition of gender isn't actually just to be sterilised. The requirements are to be unmarried, have no children, and be permanently sterile. Because anything less than that could lead to a system where a marriage involves two same-sex partners, or a child has two same-sex parents. Which is impossible using the current paperwork, so it is forbidden.
So trans people have to be sterilised, and if they have children already, they can never be recognised by the current system. Because bureaucracy.