Nihonto Club

Yes, it can be called a wakizashi based on its length.
I don't really know what to make of the writing on the TSUBA (handguard). It indeed says "NIHONTOu KITAETE KANASHIi", which can be translated as "Forging a Japanese sword is sad", or "With sadness I forge a sword", or ???. The verb KITAE can also be read as "practice" or "exercise", but in the context of swords, I think the verb "to forge" is much more likely. My wife agrees (she is a Japanese citizen).
The last two chars indeed look like "P W", but that doesn't make sense - there is NO WAY that a Japanese soldier would put English letters on ANYTHING - especially their sword.
SO, the writing may be something that was added after the war, during the occupation, when the use of English was allowed (and even fashionable in some cases)???

Pete