The P.O.W. camp parts of the movie were filmed on the island of Rarotonga, the most populous of the Cook Islands (with a population of 10,572 in 2011). The Cook Islanders are citizens of New Zealand and it seems the P.O.W. extras were local residents from the island. One man who played an extra in the movie reminisces about it in this article. That doesn’t help much with the O.P.'s question, though.
Also, the guy playing the Japanese officer in the clip, whom David Bowie kisses, is the noted Japanese musician/composer Ryuichi Sakamoto, who also composed the movie’s music.
I just assume it’s the same reason it usually happens: because they thought it looked better. People who show their chests tend mostly to shave their chest hair.
(By they, I mean the filmmakers, in case that isn’t clear.)