That's really weird.
The only trouble I've hear of in Kansai is from nearly 2 decades ago when illegal phone cards were being sold at 10% face value. People had learnt how to put a small magnetic strips long the edge and write to it to make the card appear legit to the public phone, but they were visibly modified. Police used to go up to foreigners in public phone boxes, particularly those used for international calls, hang up the phone mid-conversation and take the card. If it was a 'real' card they returned it and walked away, otherwise you could expect to take a short walk to the police box with them.
The only interaction I've had with the police has been reporting lost wallets and stolen bicycles. I got them back in both cases.