I'd like to address your questions directly.
- I was reading about Wasei-kango, and am bemused why Japanese-made Chinese words is translated as 和製漢語. Why not 日本製漢語?
Stylistically speaking, there is a preference for four-character compounds. There is a very long history of four-character compounds, deriving from stylistic practices developed long ago in written Chinese. Five-character compounds like 日本製漢語 look clunky, and violate aesthetic principles. As such, if there is a synonym that can be used instead that will shorten the phrase from five characters to four, writers will use that synonym.
- How did 和 semantically shift to mean Japan then?
The first mention of Japan in historic texts used the Middle Chinese term 倭, with a reconstructed reading of //ʔuɑ//, pronounced something like how you might say waw using an American English pronunciation. This meant "dwarf, midget", and was used by Chinese writers either to imply that the residents of the Japanese islands at the time were actually physically small, or (perhaps more likely) to imply that they were relatively insignificant from the perspective of the Chinese Empire.
Japanese writers originally used Chinese to write, so this 倭 ("dwarf, midget") character to mean "Japan" was also used by the first Japanese writers. After borrowing into Japanese, this character gained the reading wa, pronounced more or less the same as modern Japanese わ (wa).
During the reign of Empress Genmei (707–715), Japanese writers decided that they didn't want to use the word for "dwarf, midget" to refer to themselves anymore, so they looked around for a different word that had the same reading. Basically, they went shopping through the dictionary to find a nice name. :)
For more detail, see also the Wiktionary entry for 和.
- Isn't this semantic shift ironic? Some Chinese wouldn't regard Japan as "peaceful" or "calm". Sino-Japanese relations haven't been harmony.
Any irony only happens from a modern perspective. When the 和 spelling was chosen back in the early 700s, most of Sino-Japanese relations hadn't happened yet.
Please comment if the above does not address your questions, and I can edit to update.