Can anyone explain the use of "in what" in the following sentence?

As mentioned in the comments, the "In what" is not here its own entity. The statement could have been expressed as

"In a failure by Japan to live up to its responsibilities..."

However, the author desired to express the idea that not everyone sees this as a failure by Japan, rather that only some see this as a failure. Thus, they insert this idea into the expression as

"In [what some are seeing as] a failure by Japan to live up to its responsibilities..."

In this way, they can also distance themselves from the statement and establish impartiality by demonstrating that this is an opinion shared only by some and not necessarily by themselves. It is fairly common to come across this in news articles/reports where impartiality is a major component of credibility.