Booking separate rooms at a ryokan

Hi, I am looking to book a ryokan with my wife and parents (4 adults), I was planning to book the largest room with all the bells and whistles, but then I realized that since ryokans charge by number of people, it's actually cheaper if I book 2 people in the large room and 2 people in a smaller room. This would result in having more space while being cheaper. Is this against any rules or are there any downside to this? Thank you!

That sounds like the one for 4 was a particularly luxurious room. No, there is no rule against it – two couples in any case, who might want to stay separate (for privacy during changing clothes, etc.) so no problem.

Just be aware where they might serve dinner (if they serve in-room); if you want to eat together, which I assume you’ll want to, make sure they can serve in the larger room for all 4 of you (meaning they have space enough for 4). If the place serves meals in a dining hall, this is no issue.

Just make sure you have your numbers right. Often, the rate per person for a given room goes down a fair amount when you have more than two people in the room. So you might not be saving as much as you think, if you aren’t looking at actual prices quoted by the ryokan for the specific arrangements you are envisioning. But in any case, the point made by AK about privacy is a good one.

agreed with above, usually the price goes down per person. It will almost certainly be cheaper to have everyone in one room, but unless it was a massive room with two separate sleeping areas (like the Japanese/Western rooms at Lalaca at Gora) you would do better with 2 smaller rooms.

Is this against any rules or are there any downside to this?
If you can book a room for two people obviously there would be no rules against that. Some ryokan have rules against one person per room (but you can pay for two to get around that).
Also, while many ryokan charge per person, and the cost per person can either stay the same or go down when you get four or even more per room, some ryokan actually charge per room so one, or four people is basically the same.
A possible downside is that booking two rooms is that they might not be very close together (or on different floors.

" some ryokan actually charge per room so one, or four people is basically the same."

That's never going to happen if meals are included in the price, as they tend to be with ryokan. In some rare cases, for room only, perhaps having one person or four people in the room might not make much difference but if breakfast and more importantly, dinner, are included, there's going to be a big difference.

@SaruBob - meals can be an add-on, just like drinks and charged separately. Depends on the booking conditions. For the price of the room only, a price per room and not per person is how it is done in some places.

generally speaking, ryokan is a type in which meals are contained. 一泊二食付き

Even if it was cheaper to have 1 room, I would book the two separate rooms. But then I do not want to share a room with my mother or in-laws.

Personally, what I suspect is going on with OP is if all 4 travelers are sharing a "room" together OP wants an upgraded suite to give them the most privacy and space. However, if they book 2 separate rooms they can book cheaper smaller rooms. That is why there is a price differential and it's "cheaper."

generally speaking, ryokan is a type in which meals are contained. 一泊二食付き
Generally, but not universal. A simple check on what a ryokan is suggests "most" include meals, but certainly not all. It is also quite usual IME that meals are an option - not everyone wants to eat in the ryokan when there are other options easily available. Depends what you want or are looking for. Usually, about half the time I stay at a ryokan I will eat at the inn, and the other half of the time I would go somewhere else.

with all the bells and whistles

When I read the phrase written in the original question, I naturally assumed that the OP is fully aware that breakfast and dinner are optional, and chose to include those wonderful options in the booking.