From having recently read 'Le Soldat Oublié' - Guy Sajer's autobiographical account of his East Front experience in the German army, there was no watershed point at which defeat became evident: expectations of an outright victory evaporated in the first winter and the constant retreating was obvious, but there was always a lingering hope (stoked by propaganda) that the next counter-offensive would stabilize the front and that Germany would somehow finish the war alive. But mostly, war for the soldiers was just survival with a very narrow field of view - to the bitter end.

To add to OPs question: Was such a realisation, if there was one, something that spread throughout the Axis forces quickly? Were certain groups more susceptible? For example: frontline forces where operations were going more badly; or groups with less ideological reasons to fight, perhaps Osttruppen fighting in the west.

To piggyback on this question: when did the average Allied soldier realize he was winning? And did this contribute to them "taking their foot off the gas?" -- that is, not taking extraordinary (or even ordinary) risks, so as to try to not get killed before they could go home?

Rudolph Herzog wrote a book titled "Dead Funny: Telling Jokes in Hitler's Germany" where he relates the way humor was used to spread news and release anxiety. Of course, as he notes, such humor was dangerous and defeatism became a capital offense. In his words: “With the defeat at Stalingrad and the first waves of the bombing campaigns against German cities, political humor turned into gallows humor, silliness gave way to plain sarcasm.”

My favorite joke from the book has been told a couple of different ways, but the version he publishes goes as follows:

“What will you do after the war?"

"I’ll finally go on a holiday and will take a trip round Greater Germany!”

“And what will you do in the afternoon?”

I can't speak to a specific time in which the 'average' soldier or citizen would have realized when they were losing, because such a realization would have been very dependent on various personal factors. However, it seems fairly clear that following the defeat at Stalingrad and the constant presence of American and British bombers over German cities, most Germans realized that they certainly weren't winning.

Depends on what you mean by the "average" Axis soldier. The Axis powers (Japan, Germany, Italy) also had quite a few allies (Finland, Romania, etc.) and foreign volunteers (the Spanish Blue Division, European SS volunteers, "askari" volunteers etc.).

To make a few generalizations. The average soldier in an Axis (or Allied, for that matter) combat unit didn't have an especially clear view of the war's strategic picture. But they weren't stupid either. Radio broadcasts, briefings from officers, letters from home, newspapers, and the rumor mill all gave troops a blurry idea of how the war was going. Heck even if all troops had was upbeat propaganda they could figure out how things were going. If a German soldier heard "our troops are bravely defending Caen," followed by "our troops are bravely defending Cherbourg" a few days later, followed by "our troops are bravely defending Antwerp" a few months later, he could figure out the war wasn't going well for Germany...

Plus, soldiers intimately knew how well they and their unit were doing. If they were advancing, odds are they were winning. If they were in headlong retreat, their little corner of the war probably wasn't going well.

Granted, there were clearly diehards who simply saw these defeats as temporary setbacks on the way to victory and that an eleventh-hour miracle victory would be achieved. This belief seems to have been especially prevalent amongst Nazi soldiers and leaders. Consider Hitler's fervent hope that a 20th century "miracle of the House of Brandenburg" would save Nazi Germany at the last minute.

But the next question we should ask this: did it matter if the average soldier knew they were losing the war? Did it make a difference in how hard they fought? The answer varies widely from unit to unit and nation to nation.

In Germany, you have some units whose morale crumbles in late 1944 and 1945. Increasingly, more and more German soldiers deserted or simply surrendered to advancing Allied troops. They realized the war was over and figured that life would be a lot safer in an American POW camp than on the front lines (or a notoriously-bad Russian POW camp for that matter). Nazi officers and leaders tired to crack down on this behavior. Goebbels decreed, "“Any man found not doing his duty will be hanged from a lamp post after a summary judgment. Moreover, placards will be attached to the corpses stating: ‘I have been hanged here because I am too cowardly to defend the capital of the Reich. I have been hanged because I did not believe in the Fuhrer. I am a deserter and for this reason I shall not see this turning point in history.' " And SS killing squads did shoot and hang hundreds of German soldiers who attempted to desert or surrender during the closing days of the war.

As for Japanese soldiers, most fought to the death or committed suicide despite their desperate circumstances. As a British veteran of the fighting in Burma wrote about a Japanese soldier he encountered in 1945: "He was half-starved and near naked, and his only weapon was a bamboo stake, but he was in no mood to surrender."

Sources:

*Tim Cook, et al. History of World War II, Volume 3 (2004)

*George MacDonald Fraser, *Quartered Safe Out Here"