The original intention for most of the flags was to keep them aligned with rsync. The feature only compressed the data in flight, as opposed to -Z/z which stored the compressed version. This didn't directly align to anything in rsync, so I picked an unused letter in rsync (-J/j).
In retrospect, it might have had a better home as some option on -Z/z, or if I had the tool figure out if you were bottlenecked on bandwidth, spare compute, and your data compressed well, and apply it automatically.
You're totally right! If anything the gsutil's -Z/z doesn't align with rsync's -Z/z, and gsutil's -J/j is a better match for what rsync's -Z/z does. I added -J/j well after -Z/z was there so it's something that we have to life with unfortunately.
In retrospect, it might have had a better home as some option on -Z/z, or if I had the tool figure out if you were bottlenecked on bandwidth, spare compute, and your data compressed well, and apply it automatically.