Japan's Smoking Culture Research Society has rushed to Hayao Miyazaki's defense. According to Yahoo News Japan, the group points out that there isn't data on the number of smokers when the anime is set. But!

Data from 1950 states that 84.5 percent of Japanese men smoked. The second point the group made was putting more emphasis on the Japanese Constitution and the freedom of expression it grants than an international treaty. Makes sense to me!