Yes, without a will and with no surviving spouse, the estate passes
automatically to the children. The Japanese government prefers to
liquidate the entire estate and take its portion, then divide the money
equally between the children. However, if someone in the family prefers
to keep it, good legal representation can help. Whether this can happen
chiefly depends on the ability of other assetts besides the house to
bear the tax burden and pay out equitable inheritance to all parties.

In matters of who can keep the house, deference usually goes to the
eldest, unless there had been a specific endowment in a will, so there
wouldn't be any point for family members to waste money on a legal
battle. For the most part, Japanese inheritance law is very fair to the
survivors. Even if your grandmother-in-law had left a will, excluding
one or more children or dividing assets unevenly, Japanese courts
recognize an inherent right of one's fair portion for surviving family
members, and the children would still be given equal portions if they
made a claim for them. For this reason, many Japanese do not leave
wills, because in all but a few cases, the outcome is the same
regardless.

I know there is an English translation of the Japanese Code, but I'm
not sure if it's available online. Most libraries with a decent law
collection would probably have it.

Cheers