The following etymology is from an article by Kanako Shiokawa1, who in turn cites Sôichi Masubuchi2.
The origin of the modern word kawaii is the heian era word kawai (sic). It refered to a sentiment of pity or empathy, or by extension to the objects or persons who inspire such feelings, and is also the origin of the modern word kawaisou 'poor, pitiful'.* However, writes Shiokawa, the meaning soon shifted and "the compassion for the helpless state of infants and children began to include an undercurrent of charm being exerted by their very helplessness."
During shogunate times, the role of women in Japanese society became more subordinated, and as a consequence girls and women also became included in this usage. This in turn affected the meaning of the word, which began to include "feminine" qualities like delicacy, sensitivity, fragility, and prettiness.
This sense of the word remained until the 1960s. "The expression was limited to describing animals and persons of a lesser standing with an emphasis on their helpless state". In the late 60s the meaning of the word expanded to the present vaguely positive expression that can be applied to anything from cars to toys to fashionable clothes. During the 70s and early 80s the word reached its present level of popularity.
Shiokawa and Masubuchi argue that the word still shows traces of its earlier meanings, in that kawaii things are rounded and non-threatening - and "girly". To be sure, kawaii is a standard adjective for describing attractive women but would not be unambiguously positive when applied to a man.
*The (different) kanjis used to write these words are ateji.
- Cute but Deadly: Women and Violence in Japanese Comics. Kanako SHIOKAWA. In: Themes and Issues in Asian Cartooning. Edited by John A. Lent. Bowling Green, OH: Bowling Green State University Popular Press, 1999.
- Kawaii Shôkôgun (kawaii syndrome). MASUBUCHI Sôichi. Tôkyô: Nihon Hôsô Shuppan Kyôkai, 1994.