Large arenas in the capital Tokyo are now allowed to take in 5,000 spectators, or half the capacity, according to restrictions that apply until 20 June.
It has already been decided that no foreign spectators will be admitted to the Olympics, which will be inaugurated on 23 July.
A message about what will happen to the domestic audience is expected in June, but will be taken into account the infection situation and the spread among virus variants, says Japan's Cabinet Secretary Katsunobu Kato.
The government has proposed that the emergency situation in most prefectures during the summer games should be partially lifted so that bars and restaurants can be open longer.
But nothing is clear yet and the idea of holding an Olympics during a pandemic has been questioned by experts.
One of those at the forefront is the government's medical adviser, Shigeru Omi, who will hold a press conference on Wednesday.
Omi believes that the International Olympic Committee (IOC) ignored the risks he and other experts presented.
The IOC defends itself by saying that most athletes and media on site in Tokyo will be vaccinated and that the rules with, among other things, daily testing and mouth protection will further reduce the spread of infection.