I'm just gonna play the devil's advocate here but

Are you sure he was actually masturbating? And by that I mean if the police or whatever confronts him and he denies it (I was just itching a bit, etc) can you prove that he was actually masturbating?

And even then is that explicitly illegal in Japan? (I don't know the laws)

You've only ran into him twice, and it's in a cafe you go to out of your own will. You claim he looks at you and moves his hand behind his fanny pack. Is it possible you're being very paranoid? As far as I understand if you get up and leave it's not like he will follow you and stalk you, correct?

There's probably tons of creeps around but just because someone is looking at you while moving their arm isn't a good indicator of anything and chances are the staff don't act on that because it's a fairly high chance that a) he wasn't actually doing anything wrong, or b) he is doing something wrong but no one can prove it. It's similar to how you can walk into a hotel and eat their breakfast buffet for free and chances are the staff won't confront you because any damages done in the 5-10% they are wrong is very heavy.

Anyway I'm not lawyer or anything but if I was you I would just find another cafe shop. If he starts actually following you around or seek you out and it's obvious and you're sure there's proof of that on security cams etc then go to the police.