Does Xbox Team and Microsoft hate Japan?

I don't think so.. Microsoft team does not have this kind feelings

but the Rising Sun is still used on the Japanese Military Flag.

It is, but it's not the same flag, it's a different design. But regardless of the different design, whether it has a gold border with 8 rays instead of 16, it is still controversial in East Asia over Japan's actions in WW2.

Plus, it is still used by right wing groups in Japan. Microsoft's policy is to be 'E' for 'Everyone', to that end, it does not allow the use of images or symbols that can be offensive to some users. The American Flag is not offensive, the Confederate flag
likely will cause offence though.

Notorious definition -

ADJECTIVE

1. 
   
   famous or well known, typically for some bad quality or deed
   
2. 
   
   Bad deed kinda says it all.
   

If it was bad behavior during the war, it was in many countries, including the United States and Britain.Also, U.S. government investigations have found no evidence of Japan wrongdoing.

https://www.archives.gov/files/iwg/reports/final-report-2007.pdf

Hi globcell

Microsoft does this to protect their brand by not having hate speech or any signs or reference that might be harmful to certain communities making it a safe environment for everyone. Even if it was a good sign and xbox didn't know , japan players can request
the use until it's added. Like you are now.

Notorious definition -

ADJECTIVE

1. 
   
   famous or well known, typically for some bad quality or deed
   
2. 
   
3. 
   
   Bad deed kinda says it all.