What is your one favourite place in Japan?

I guess it's sort of like finding a soulmate. :)

Gero, located in the Gifu mountains it's an onsen town surrounded by mountains and rivers. Most beautiful place I've been. Lot of really nice walking paths, along the river or up through the mountains past Gassho village.

Can I collectively point at Okinawa's islands? It's very hard to choose just one... maybe Taketomi. In general Okinawa is my favourite place in Japan for lots of reasons.
Totally agree with the OP about the atmosphere of Lake Tazawa, a truly unique place.

You've seen nothing of Gero if you haven't been to its detached outlying villages like Maze. That's where the real treasure is.

Since Taketomi has already been mentioned, I'll say my favorite spot on the mainland: the Tajima Daibutsu at Chorakuji in northern Hyogo. In the middle of Nara or Kyoto it wouldn't be out of place, but to see such a gorgeous, massively-scaled temple surrounded by the beautiful mountains of Tajima never fails to give me a sense of surprise and wonder.