The japanese smash community doesn't happen to be the only one doing this. As a matter of fact, all Italian tournaments (whether they were melee or brawl) never had any money prize at all. As many people more or less directly suggested in their replies the choice is pretty much directly dependent on the political/ideological views of the community (TOs in particular) about whether top players should be threated equally in comparison to others or not. It's a very old topic, with both sides having reasonable arguments (Who really won the war? The general who lead the army, or the soldiers who fought the battles?), many of which have already been expressed in this topic. There's not much left to add to the advantages of having money prizes since other replies already cover this point so I might as well give you an insight on the Italian system and the causes/consequences behind it.
Italy's position on this has always been crystal clear: law is the same for everyone and top players do not get special treatment because of their position. This mostly applies to other circumstances (most notably DQs although fortunately I don't think it ever happened) but also has consequences in deciding what to do of the entry fee money once the venue price is covered. Most of the time we don't even come to that point: we simply calculate an entry fee whose purpose is limited to covering the venue price and is also very low as a result. This way each player joining the tournament indirectly gets a discount from the fact that Italian top players are giving up their prize money. The only time this system was not used was when we hosted a tournament in a venue owned by one of our own guys: in this case there was no need for an entry fee at all, but we eventually opted to keep it anyway in order to devolve the money to players coming from far away whose train ticket had been particularly expensive (the tournament was actually in Switzerland).
Overall it's a pretty radical choice with radical causes and consequences as well: afaik no Italian player ever played for money since the very start (for some of us, including me, this is also a rule of ethics: as my smash wiki article states I never played a money match in my life, insisting that fun should be the one and only motivator). This brought us to adopt the present system which for obvious reasons never attracted videogame players interested in money. This possibly backfired on us because could be one of the reasons the Italian smash community is and has always been so small and kinda improductive competitively speaking (the other ones being problems with traveling/trains, problems in organizing events and videogames/nintendo not being very popular in general). On the other hand, people in our community are bound by friendship and love for videogames rather than by competition/thirst for money and as such it was able to endure the loss of interest in both melee/brawl that hit us over the years (I myself just came back from a smashfest where no melee nor brawl was played at all, which I consider to be the biggest contradiction and achievement at the same time).
TL;DR: Choosing to have money prizes or not is directly linked to TOs' ideological positions on whether top players are equal or not to others in terms of importance in the community. Over the time, the choice will also structure the communities in different specific types because of the differing purposes behind people's affiliation. Italians never had money prizes because we're all a bunch of baby-eating commies and will bury you all.
