I'm sorry if my reply came off as overtly hostile Toris, it wasn't meant to be as angry as it sounded...and half my response was really meant for another topic entirely, but I kind of lumped everything into a mini rant, I have a tendency to do that sometimes! xD
...Have you tried looking into the lore of the Blood Dragons faction(s), and the Kusari Exiles? You might find some interest there.
The change didn't make much sense, no. I'll agree to that.
Real life Japan was transited from an Empire ruled by an Emperor really fast to a democracy as well, but it should be noted that they were attacked by the US, a democratic nation. This change in Kusari would've made sense if Kusari were to be beaten by Liberty, in example.
But it makes little sense as a change when it's done by Gallia - a very oppressive monarchy that tries to discredit democracy whenever they can because of their own internal issues with the Council and popular support to them by the common people. Installing one like that and accepting it would seem just odd to the general Gallic population, indecisive even.
Not to mention that democracy has a very volatile nature, and could change face quite quickly, even if it's just a "lets pretend" democracy, it will still be far easier for Gallia to install a new puppet emperor of their own and marry him with Gallic royalty or something to "seal the deal", or even just continue to control him directly.
Does it make sense? No. Can we change it? Maybe, although certain players in the dedicated Kusari playerbase tried this in the past several times without success. The major issue that this piece of lore is now part of the mod for 3 versions (86, 87 and 88) this is quite an issue as it stands currently, and the original decision about it was done in a rushed and mindless manner as pointed by @Yaoquizque
Kishiro will keep its policies in this regard. Kishiro is as someone mentioned it earlier "western" and we don't like theocracy, theres too much of it in the real-world anyway. I know that walls have ears and so as skype does - I know many people try time and time and again to bring back theocracy because it will jump-start kusari again.. yeah like it ever did. Kishiro wants progress, not change - And those two are completely different from each other.