We examined the cross-lagged relations between the home literacy environment and literacy skills in Japanese, and whether child's gender, parents' education and child's level of literacy performance moderate the relations. One hundred forty-two Japanese children were followed from Grades 1 to 2 and assessed on character knowledge, reading fluency and spelling. Their parents responded to a questionnaire assessing the frequency of their teaching and shared reading. Results showed that parent teaching increased and shared reading decreased from Grades 1 to 2. Cross-lagged path analysis indicated that the literacy skills in Grade 1 were negatively associated with parent teaching in Grade 2. The results further suggested that more educated parents of higher performing children, particularly boys, adjusted their involvement to their children's literacy skills, while less educated parents of lower performing children did not. These findings indicate the importance of parents' sensitivity to their child's performance.