From ancient times, the Japanese (indeed East Asians generally) had not missed the point that many of what we call "religious traditions" of East Asia were alike in some fundamental way. In general, the Japanese grouped together the Asian spiritual traditions by giving them names (usually borrowed from Chinese) sharing one of two suffixes: kyō ([教] broadly meaning "teachings") or dō ([道] broadly meaning "path," "way," or "course"). The convention was to precede this suffix with the name of the spiritual inspiration behind the tradition. Thus jukyō indicated Confucianism ([儒教] "Confucian scholar" plus kyō), butsudō or (later) bukkyō indicated Buddhism ([仏道/仏教] Buddha" plus dō or kyō), and dōkyō indicated Daoism ([道教] "dao" plus kyō). The name "Shinto" itself consists of the character for kami ([神] in such compounds pronounced shin) and dō ([道] in this case mutated into tō). In referring to Christianity today in Japan, the common term is kirisutokyō ([キリスト教] "Christ" plus kyō).SOURCE: Shinto: The Way Home, by Thomas P. Kasulis (U. Hawai‘i Press, 2004), pp. 30-31
As we see in the two terms for Buddhism (butsudō and bukkyō), the suffixes dō and kyō may be interchangeable. There is, however, a difference in their etymologies: dō has the nuance of praxis and kyō of doctrines. Hence the Japanese arts as well as religions may have the suffix dō: budō ([武道] "way of the warrior" or martial arts), chadō ([茶道] "way of tea" or tea ceremony), shodō ([書道] "way of writing" or calligraphy). In self-consciously creating a word to translate the Western term "religion," this difference in nuance between kyō and dō is relevant. The use kyō in shukyō suggests a Japanese impression that the concept of "religion" is more about doctrine or creed than practice.
What about the first part of the word, the shū of shūkyō [宗教]? The term shū suggests a discrete religious community with common practices and teachings. In fact, the term shūkyō was not truly a neologism. There was a rather arcane Buddhist use of the term to mean specifically the doctrines of any particular Buddhist sect or school. Given this etymological context, to inquire in Japanese whether someone is "religious" (shūkyōteki) may seem a little like asking them if they are "sectarian" or "dogmatic." In choosing such a word to designate "religion," the scholars who created the neologism might have been thinking of the evangelical and exclusivist aspects of the Western religions they had encountered (especially through Christian missionaries). This exclusivity in Japanese Christianity continues today, incidentally: the large majority of the 1 percent of Japanese who designate "Christian" as their religious affiliation do not, unlike many of their Buddhist or Shinto compatriots, also select another tradition.
NOTE: Some quotes around italics eliminated. Kanji characters added.