The Japanese theatre finds its roots, its inspiration, and its inexhaustible resources of regeneration in the two main spiritual forces of Japanese tradition, Shinto and Buddhism. Both Shinto and Buddhist heritages are complex, having assimilated widely different elements of distant origin such as shamanism, Hinduism, Confucianism, Taoism and later Christianity. The compromising medieval fusion of Shinto and Buddhist cults was eventually followed by Shinto revivals in modern times. From the beginning of this process strong shamanistic and magic folk beliefs were present, and at the popular level, eventually came to the foreground of the daily practice of both religions.
My point of view is before war when Japanese tried to modernize their theatre, they met with alf layla wa layla as a part of western drama heritage. They did not aware that it is part of eastern or Islamic culture. They knew it first through west and treated with it as western literature. They use it as a tool of modernizing and enrich the Japanese drama on the level of text and theatrical techniques which they saw in Europe. They used Alf Layla wa Layla in their Japanese theatrical heritage, just like Kabuki and Kyugen, and Kodan. But after second world war, they became aware enough that alf layla wa layla is not part of European heritage but at least the play writers still do not aware that it is part of Islamic Heritage. They inspire it to express their politics, love and the eroticism scene on their drama text.