This belief has led to numerous symbols throughout Japanese history depicting the image of the rising sun (Asahi). Since ancient times, there have been many variations of the Asahi that represented festiveness and good fortune. It was first adopted as the Imperial War Flag on May 15, 1870 under the Emperor Meiji, and was used until the end of World War II in 1945. It was re-adopted on June 30, 1954 as the Japanese Naval ensign, and the Japan Self Defense Forces and the Japan Ground Self Defense Forces currently use a variation as well.
Outside of the military, the Rising Sun Flag is still used on numerous commercial products, designs, clothing, flags, beer cans (Asahi breweries) and newspapers (Asahi Shimbun). Fisherman use a variation called the tairyo-bata to represent their hope for a good catch. It is still used in Japan is a decorative flag for festivals, as well as at sporting events by the supporters of Japanese teams and individual athletes.
The symbol of the Rising Sun is currently in use by several US military units stationed in Japan, including the US Fleet based in Sasebo, Japan, the US Army Aviation Battalion Japan, the Strike Fighter Squadron 94, as well as the former insignia of Strike Fighter Squadron 192 and Joint Helmet Mounted Cueing System with patches of the 14th Fighter Squadron. There is also a mural at Misawa Air Base featuring the symbol.
Martial artists in Japan historically have long-standing ties to these political organizations, the most famous being Kano Jigoro of the Kodokan. It is believed in some circles that Kano's political influence is what led to Judo's worldwide acclaim, in addition to the generally accepted history of challenge matches and Jujutsu "falling out of favor." It should be noted that Kano's prized fighter, Saigo Shiro, was in fact a highly skilled aikijujutsuka who studied under his adopted father Saigo Tanomo, the same man credited with teaching Takeda Sokaku of Daito Ryu fame. Some speculate that had Saigo Shiro not become involved with Kano for political gain, he would've inherited the art instead of Takeda (there is in fact a line of Daito Ryu propagating this alternate history, but they are largely considered fraudulent by the greater Daito Ryu community). This suggests him having a very high level of proficiency in the advanced biomechanics of aiki, making him a very formidable fighter... But that's a story for another day.
Takeda Sokaku taught over 30,000 students during his lifetime, many of whom were among Japan's highest political leaders and therefore he was connected to several of these national groups. Takeda and Saigo Shiro are just the beginning of the connection between Daito Ryu and these organizations. Another branch of Daito Ryu, the Kodokai founded by Horikawa Kodo in 1950, was also known for its high ranking members belonging to nationalist groups and political organizations in Hokkaido. One nationalist secret society, the Sakura Kai, held their meetings in the dojo of none other than Ueshiba Morihei, founder of Aikido. Ueshiba also had ties to the Kokuryu Kai through his discipleship to Onisaburo Deguchi of the Omoto-kyo religion. Yoshida Kotaro, who introduded Ueshiba to Takeda and held high ranking in Daito Ryu as well as inherited his family tradition of Shidare Yanagi Ryu, also had ties to the Kokuryu Kai. This is just one ryuha. I could go on but the connection between prominent martial artists and nationalistic organizations in Japan is well-documented, as is the use of the Asahi symbolism to represent them. Therefore, the use of the Asahi by martial artists is also not out of place. For many of us, depending on our individual system, it is part of our history.
However, the use of the Asahi dates back nearly 1,000 years. Of course, symbols are adopted and misappropriated constantly. Therefore, their meanings may change over time. What was once a symbol of fortune and well-being in the Hindu religion became known as the emblem of genocide and hate in Nazi Germany. The Naval Ensign of the Confederate States of America has been perverted by white supremacist groups. The list goes on, but that does not take away from a symbol's intended purpose.
As martial artists, we are responsible for not just knowing the history of our arts but also the context of the world they are derived from. Martial traditions have been intertwined with the culture they are born in since the beginning of time. Understanding such history allows the practitioner to connect the dots to why certain things are done. For example, arts of a military origin emphasize weapon use as well as standing grappling compared to their civilian counterparts, which may feature heavy striking. Filipino knife fighting is known for its slicing and slashing, excellent for loosely clothed opponents in the jungle but not so effective compared to the point-centric tanto jutsu to drive through weak points in Japanese armor. Tools and fighting systems evolve based on their environment and intended use, as do symbols.
Flags are common in martial arts schools, both national flags as well as organizational flags. It is important to understand the history of the symbols we display, both the good and bad. I am sure the American flag is offensive to some, though I have yet to meet an instructor in this country who refuses to display it in their school. While the United States certainly has unspeakable sins in its history, the Stars and Stripes is often regarded as a symbol of freedom and can be proudly displayed. The Rising Sun Flag is no different. The Imperial era is certainly a stain on the history of Japan, but the Asahi has a long history of representing good and festivity, and is still used to bring luck and fortune. Therefore, as long as you understand and can articulate the intended purpose, I don't believe there's any issue in hanging it in your school.