Japan did use chemical weapons. During WWII, they used it however not against western forces but instead against troops of other Asian countries such as China.

Source: Yuki Tanaka, Poison Gas, the Story Japan Would Like to Forget, Bulletin of the Atomic Scientists, October 1988, p. 16-17

All sides that used chemical weapons in WW1 understood the carnage they created first hand. They also realized that their opponents held large stocks of chemical weapons and would be used in retaliation once used. Chemical weapons are most valuable as a psychological weapon but the consequences of using them outweighed their value as a terror weapon. Its really the same reason why Mutually Assured Destruction works in relation to nuclear weapons

Gas was unpredictable and ineffective. At least in terms of use in battle. A change in temperature or wind direction or a sudden rainstorm and your carefully planned gas supported offensive is suddenly a slogging match against entrenched troops while your own supply corps is forced to wear protective gear. Not to mention the problem of where to use the gas. Do you use the gas on the front line? Only 15-20 percent of the enemy is on the front line. If those troops retreat 10 miles behind them is an armored division. Use it on the armored division? They retreat also. But as an armored division they have the mobility to drive around you and flank your formation.

The second problem is that everybody expected a gas attack. So every Army prepared for a gas attack. Every Army had gas masks ready and waiting. There was a decent chance that even if your attack was perfectly executed it would just mean that the battle would be fought with troops on both sides wearing gas masks.

So, where would a gas attack be effective? The answer is: The military experts of both sides agreed against a civilian population center. What was the trigger for such an attack? According to records from both sides The only acceptable trigger would be a chemical attack from the enemy.

The analysis for both sides indicated that the risk of retaliation by chemical weapons against cities far outweighed the possible benefits of chemical warfare on the front lines.

At the end of the war when German forces were mostly incapable of attacking Russian or British positions the Allies continued to avoid chemical weapon use because they feared condemnation from the other allies. The memory of the horror of chemical weapons in WW1 was very much alive in Europe. The small tactical benefit that could be gained by chemical weapons was likely to be lost in political condemnation.

The Japanese did use chemical weapons in China. They gained limited advantages as the Chinese troops predictably fleed from the attack but then took up positions a short distances away. The effect was usually a bulge in the line that was then exploitable by the numerically superior Chinese. The Japanese never used chemical weapons against the Western Nations. Likely this was because of fear of retaliation. The Doolittle raid did very little damage overall but it proved that Japan was within reach of Allied bombers.

Piggyback question: I've heard that Italy used chemical weapons in Ethiopia, can somebody confirm or deny and expand upon why if possible?