Why would that be a reason to ban iodized salt?

Too much iodine can lead to thyroid problems, and this has been a problem in some subgroups in Japan: https://academic.oup.com/jcem/article/107/6/e2634/6516999

Even without iodized salt, Japan is one of the highest consumers of iodine worldwide. [1]

But I agree. Even though iodized salt is pointless in Japan, so is the law banning it (assuming OP is correct, and it is in fact banned).

[1]: https://anaturalhealingcenter.com/documents/Thorne/articles/...

IIUC it's not specifically banned by name in a law, more like not on the whitelist for food additives. Industrialized foodstuffs manufacturing in late 20th century Japan was wild, and additives are managed on approvals basis than bans as the result.