The point of divergence (suggested by LeX on the Alternate History forum) is the death of Mao Zedong during the Long March (1934-1935), leaving the Chinese Communist army with less effective leadership in the civil war. History mostly proceeded like in our timeline (OTL). Motivated by ultranationalism and allied with Nazi Germany, the Imperial Japanese military conducted a genocidal expansionist campaign in Asia, committing mass atrocities including the Nanking Massacre, human experimentation by Unit 731, the Bataan Death March, and systemic sexual slavery, before their inevitable defeat by the United States in 1945 after the atomic bombings of Hiroshima and Nagasaki (a slight difference in that Japan managed to keep the southern Kuril Islands before the Soviets could take them). The Soviet Union, having backed Mongolia and East Turkestan as buffer states starting in the 20s and 30s, invaded the Japanese puppet state of Manchuria, which later became the People's Republic of China or "North China." The rest of the Republic of China remained under the Nationalists (KMT). Korea was split in half between US and Soviet influence.

As World War II ended, the Cold War between the US and Soviet Union began. This is when events truly diverged. In OTL, the US occupation under Douglas MacArthur initially focused on punishing Japanese war criminals, although Emperor Hirohito was exempt because they believed that retaining the Emperor was necessary for stability. But as the USSR became the new adversary of the US and the Chinese Communists took over the mainland, the "Reverse Course" and "Red Purge" occurred, suppressing leftist movements and rehabilitating war criminals like Nobusuke Kishi (grandfather of Shinzo Abe), who went on to become Prime Minister and helped set up the 1955 System in which the conservative Liberal Democratic Party maintained an almost-unbroken chain of electoral victories. The geopolitics of the Cold War had discouraged reconciliation between Japan and its neighbors, as education about Japan's atrocities was mostly dismissed as communist propaganda until Hirohito passed away.

Clifton B. Parker:
"Germany confronted its wartime past so it could reassert German leadership in Europe at a time when a unified Cold War stand against the Soviet Union encouraged reconciliation.
On the other hand, Japan, at the urging of the United States, was positioned in a long-term Cold War confrontation with its principal victim in World War II, China. As a result, little motivation existed for Japan to look deeply at its atrocities against China, [Stanford scholar Daniel Sneider] said."

However, in this timeline (ITTL), the smaller communist presence in Asia led to a less severe suppression of left-leaning politicians and other individuals in the late 1940s, opening the door for a multi-party system including the Japan Socialist Party. Hirohito also abdicated, with Prince Regent Nobuhito becoming head of state until the enthronement of Akihito, starting the Heisei era in 1952 instead of 1989 and reigning for 67 years. The prosecution of other war criminals by the Allied occupation continued. The Korean War (1950-1952) reunited the Korean peninsula under Seoul while also stimulating Japan's industrial and economic recovery. In OTL, representatives from China and Korea were not invited to the Treaty of San Francisco in 1951 due to the exile of the ROC to Taiwan and the division of Korea. But ITTL, China was part of the Treaty, and a second treaty was made after the Korean War. The treaties addressed reparations and unambiguously settled any potential island disputes. Instead of the US "hub-and-spoke" system, a multi-lateral relationship between Japan and the republics of China and Korea was established in opposition to the USSR and the "Asian Iron Curtain" consisting of North China, Mongolia, and East Turkestan. All of these factors led to a greater reflection within Japanese society towards the crimes of Imperial Japan, which were emphasized in schools. Historical revisionism and denialism (such as the idea that Japan was “liberating Asia”) were made illegal. Some Japanese politicians visited places like Nanking, Seoul, and Manila to solemnly atone for the past. The Rising Sun flag was banned, and war criminals were never secretly enshrined at Yasukuni Shrine in 1978.

With the LDP being less influential, many social reforms gradually occurred in Japan with pressure from activist groups and labor unions, including the reduction of long working hours and the gender pay gap, and an increasing acceptance of immigration in the face of labor shortages. Because women aren't forced to choose between a career and having children, the fertility rate is slightly higher, although still below replacement rate. Japan has also become a more attractive destination for immigrants, with greater economic opportunities and better working conditions. Immigrants currently make up 6 percent of Japan's population of 133 million instead of 2 percent in OTL. Ethnic relations aren't perfect as some nationalist hate groups still exist, but Japanese society is slowly getting used to the presence of foreigners. Same-sex marriage was also legalized in 2014.

During much of the Cold War, China and Korea were ruled by anti-communist authoritarian governments until democratic protests and reforms started in the 1970s and 1980s (ITTL, Chinese democracy is more like OTL India than Taiwan). The two Chinas eventually reunified peacefully in 1993 after the Soviet Union transformed into the Eurasian Confederation in 1990. The East Asian Community was established in 1972, facilitating more diplomatic and economic ties between the three nations. The flag of the EAC is based on the Hanzi/Kanji/Hanja characters for "East Asia" (東亞). Due to the massive disparities in population size, the EAC is not as integrated as the European Union, with members retaining their respective currencies. With some help from the US, Japan still had an "economic miracle" but it was less prominent due to the recovery of China and Korea happening sooner; this was balanced by Japan having a larger (non-captive) market to sell products to. The yen was kept artificially low in the first few decades after the war, leading to trade friction between the US and Japan in OTL, and the 1985 Plaza Accord which strengthened the yen relative to the dollar and made exports more expensive. ITTL, with exports being less dependent on the US and with better monetary policy by the Bank of Japan, the economic bubble of the late 1980s was prevented along with the subsequent "Lost Decades" of stagnation. Today, Japan has a gross domestic product of over $7 trillion.

More competition meant less complacency in the Japanese tech industry, which took advantage of digitalization and software development in the 1990s after computers became sophisticated enough to render Kanji script (while China and Korea were focused on manufacturing analog hardware). Shibuya, Tokyo became known as "Bit Valley," while other tech centers include Fukuoka and Tsukuba. Today, Japan is still competitive in electronics and is famous for smartphones instead of cassette players and fax machines. Japan even has its own crewed spaceflight program, having launched Fuji space capsules from Tanegashima since 1998. In the late 20th and early 21st centuries, the "Asian Wave" made media such as Chinese movies, Korean music, and Japanese animation and video games popular around the world. To compete with the juggernaut that is China, Japan is more focused on the international market ITTL, being less prone to "Galapagos syndrome." Transportation is also more interconnected: one can take a high-speed train line from Sapporo, Japan to Fukuoka, then through the Tunnel of Reconciliation to Busan, Korea, then up into China and all the way down to Taipei or Hong Kong. Some bitterness over Japanese imperial rule remains within the older populations of China, Korea, and other Asian countries, but like Germany in Europe, Japan has become a prosperous democracy that is politically respected by its neighbors.