In response to global warming concerns, there is an accelerating transition toward Electric Vehicles (EVs) worldwide. EVs offer potential for a circular economy across multiple phases: new vehicle manufacturing, used car distribution, battery repurposing, and recycling. This article examines Japan’s EV market challenges and prospects from a circular economy perspective. Currently, about 80% of used EVs in Japan are exported overseas, creating a bottleneck in the circular economy system. This is driven by structural issues including concerns about battery performance and lack of market transparency. To address these challenges, solutions such as establishing battery performance evaluation standards and implementing residual value guarantee programs are proposed.