P.S. Only SOME Japanese leadership was under the impression that after the reverses of 1942, Japan could still win the war by military means, even going as far as a total war of annhiliation (even to include plague and radiological bombs).
These leaders were predominantly from within the Japanese Army (like Premier Tojo), and which, unlike their mostly-non-political Naval colleagues, had not been up against any allied force capable of handing them a defeat (up until Guadalcanal, the Japanese Army had (mostly) defeated the Chinese Nationalists, the British, Canadians and Dutch in South-South East Asia, and the Americans in the Phillipines. They had bullied the Vichy French in Indochina. They had no concept of defeat on land, and therefore, the more hotheaded amongst them could not be expected to entertain the possibility of such (although many did).
We make several mistakes when dealing with Japan's history at this point in time. Prime amongst them is the practice of pretending that Japan was a Western nation and governed by western principles, simply because it appeared to be western. It makes it easier for us to think in those terms, but this was not the case. There are many times in the history of the Pacific War that many of us would ask "Why didn't they do this, that or the other, because that's what I would do?". the answer to this is simply because they don't think as we do (and they still don't in some ways).