Through most of Japan’s history, she had several different “ways” (道) and “teachings” (教) that sycrestically existed together with each other. In English we often separate them out with various specific names such as Buddhism, Confucianism, Taoism, Shintoism, and so on. But these distinctions were much less clear in old Japan. There was the classification system of the “three teachings” (三教), adopted from China which originally referred Buddhism, Taoism, and Confucianism. However, this classification was less popular in Japan. Furthermore, even the distinction between ways and teachings were ambiguous. For example, Buddhism was usually called a teaching but sometimes referred to as a way, while Shinto is a way, but sometimes included as one of the “three teachings” (replacing Taoism). Thus it is quite clear that these ways and teachings were not strictly separated from one another in premodern Japan, and that there was no one institution or categorization that can be said to be equivalent to the Western idea of “religion”.
This was problem when Japanese entered the modern era in 1868. That year, the old military government was forced to step down, and direct rule by the Emperor was restored. The new Imperial government, faced with pressures both internal and external, needed bring Japan out of its long sleep of peaceful feudalism and unite the entire archipelago into a modern nation-state strong enough to rival the many Western Powers lapping at her shores. One of the pressing issues that Japan needed to confront where the demands for “freedom of religion”. Japan had no word that could translated as “religion”, so it seemed that this new word “religion” meant merely “Christianity”. Indeed, it seems that that was what the foreign nations wanted by their insistence on “freedom of religion”: they wanted to be able to build churches and send Christian missionaries into Japan. Thus “freedom of religion” was written into many of the (unequal) treaties Japan signed with Western nations and was enshrined in the Meiji Constitution.
Eventually, it became clear to Japan that Westerners did not just mean “Christianity” when they said “religion”. So what was religion in Japan then? Already Westerners were familiar Buddhist and Confucian traditions from their experience in China. Buddhism, with its long academic history and wealth of rituals, was a religion. Confucianism on the other hand was only a philosophy. What about Japan’s indigenous tradition of Shinto? That was a bit more difficult.
The Meiji government, in its effort to westernize, had already ordered a clear distinction be made between temples (Buddhism) and shrines (Shinto). Since these two traditions had often been indistinguishable throughout most of Japan’s history, it seems likely that Shinto, just like Buddhism, was also a religion.
Thus in the early Meiji period, Buddhism and Shinto were both seen as religions similar to Christianity. A department of religion was created within the government to regulate the religions. The Imperial government favored Shinto and considered making it the state religion. Despite this, Shinto priests could not compete with the better educated and more theologically-grounded Buddhists when lobbying for influence within the government. Thus both Shinto and Buddhist priests were unhappy with the arrangement.
Shinto had existed syncrestically along with Buddhism, but now separated, there were some important differences between the two. Buddhism had a long tradition of scholarly education and specific doctrines. But Shinto lacked both scriptures and doctrine. And perhaps even more importantly, Shinto had a very public and geographic nature. Given Shinto’s lack of characteristics considered defining of religion (doctrine/scriptures) and its public nature, Buddhist and Shinto priests began to think perhaps Shinto wasn’t a religion. Perhaps it was less than a religion. Perhaps it was more than one.
At this point, it might be good to remind my dear reader of the sort of theories that were in vogue in the West. There was a general idea that time is progressive. All of civilization runs through the same stages with the West being the considered the jewel of modern civilization and all other countries were classified below that at various stages according to their similarity or dissimilarity to the West. Religion also followed this “progressive” path. Ritualistic religions were primitive and for barbarians. Protestant Christianity (monotheistic, lacking ritual, and focusing of internal spirituality) was the most civilized religion. The only stage above Christianity was the lack of a need of religion at all: secularism. That societies progress with time and eventually become secular as they modernize is called the “secularization theory”. It is unfortunately still quite popular today, despite being clearly wrong (Cf. Jose Casanova).
In China, the Qing government and other reformers tried to formulate Confucianism into a state religion equal to or above Christianity. This is understandable, given many of the Western powers had State Churches. However, these Chinese attempts failed and China embraced a Western-style Scientism. Japan, on the other hand, ended up rejecting the idea of a Shinto as a state religion. Instead, the government listened to the Shinshu Buddhists–who argued that Shinto was less than a religion–and the Shinto scholars–who argued that Shinto was more than a religion and determined that religion and state rituals (Shrine Shinto) should be separate. This conclusion provided satisfaction for most of the parties involved.
In conclusion, the Imperial government spent the first 20 or so years of the Meiji period looking at Western examples and trying to figure out how to mold Japan’s premodern traditions into the structure required by a modern nation-state that can compete with the West. Since many Western nations had a state religion (of Christianity), Japan considered making Shinto into a religion that could serve as a state religion. However, the lack of doctrine and institutionalization of Shinto made it poorly suited as a religion. Furthermore, it made no sense to call reverence for ancestors/kami a religion because religion is a personal belief and reverencing ancestors/kami is a natural fact of life. Thus the Meiji government adopted Shinto as a system of secular rituals. Meanwhile “freedom of religion” meant that Buddhism, Christianity, and (some) new religions could freely practice their beliefs while still be moderated by the government.
Today, due to the forced re-categorization of Shinto as a religion after WWII, Shinto is legally considered a religion. However, the actual conception of Shinto among most Japanese people tends to align more closely with the prewar idea of Shinto as social ritual or the premodern syncretic conceptions of Shinto as a tradition or custom to be practiced along with Buddhism.