Accurate intraoperative assessment of joint space width (JSW) is critical for achieving proper soft tissue balancing in total knee arthroplasty (TKA). Conventional instruments such as metal feeler gauges and mechanical tensioners are limited by discrete resolution, inconsistent force application, or bulky form factors that require prior bone resection, restricting their use in early surgical stages when native structures must be preserved. This study presents a compact sensing system capable of continuous JSW measurement under controlled distraction without pre-resection. The system consists of planar spiral coils on a flexible printed circuit board (FPCB), embedded on opposite sides of an inflatable polyurethane balloon. During inflation, the balloon symmetrically distracts the tibiofemoral joint, and changes in axial coil separation are captured via induced voltage. A calibrated voltage-distance mapping enables sub-millimeter resolution, while a PID control loop regulates balloon pressure to maintain constant loading. Laboratory experiments showed a mean absolute distance error of 0.032 mm (σ = 0.023 mm) across a 2–10 mm range. The pressure control system achieved a mean absolute error of 2.896 kPa, confirming stable and repeatable force delivery. These findings support the feasibility of the proposed system as a real-time intraoperative tool for quantitative JSW assessment and soft tissue balancing during TKA.