The Japanese economy had been operating at full capacity since 1931. But the decentralized production, with home production of many components, could not compete with the assembly lines of the West. The Japanese High Command believed that the war would be short, and the military production could be converted to home production after the war was over. Unlike the Western powers, Japan waited until 1944 before mobilizing their home population for total war. The lack of a war economy left Japan without enough materiel to sustain its civilian population and its military.
However, the war in China dragged on, with millions of Japanese soldiers committed in a stalemated battle. The economy began to show signs of strain, with all of Japan's manpower committed to production or the military. Prime Minister Prince Fumimaro Konoe tried to work out diplomatic solutions with the West to achieve Japan's strategic needs.
When the United States froze Japan's assets and suspended trade, the Japanese Navy had three years operating supply on hand. If civilian consumption was reduced, then the Navy could have more oil. This began a pattern of civilian sacrifices for the war effort. The Army advocated for war. Konoe resigned and was replaced with a military government headed by Hideki Tojo.
Western propaganda, to this day, portrays the Japanese public as unified behind the Emperor for the war effort. In actuality, the Japanese people's hopes rose and fell with the success of the war. John Dower, in Japan in War and Peace, argues that Japan had a significant minority that was very much against the war. The Japanese Communist Party was banned and its members incarcerated because they were fermenting anti-war opinions.
In 1944 the Japanese government was shocked by the fall of Saipan. A cabinet headed by Imperial Army General Kuniaki Koiso replaced Tojo's government. This cabinet still held on to the idea of Japanese victory, calling for the Japanese people's spirit to overcome the shortages in war materiel and food. Secretly, the Emperor was working to end the war with Navy and civilian leaders who were sympathetic to ending the war. They had to be careful; military extremists had assassinated anyone who had attempted to oppose the war in the 1930's; and it was not inconceivable that they would assassinate the Emperor in his own name if he tried to openly work for peace.