Looks very fake to me. There are legitimate kanji characters on it, but many are illegible, and most feel like fake idioms, or maybe Chinese idioms (that are not used in Japanese). No recipient's name, no signatures, just seemingly random 4-character idioms, most of which are unintelligible. Actually it looks very much like the flag that was posted on here several days ago, with a near identical 4-character idiom of 生保向?
The red seal doesn't look like a temple/shrine seal. Not a typical Japanese seal, anyway.
Often guys who went to the war wanted Japanese-ish flags as souvenirs, so there was a huge cottage industry in pumping out fake wartime flags. Could be that your grandfather bought one of those souvenir flags.