Kakihara went crazy...and before he died, he hallucinated that Ichi killed the kid, when in fact he didn't.
This is because Kakihara sees Ichi as a monster, when he's really a total coward.
Once he believes this, he commits suicide in his madness.
On his way down, he feels his life is complete.
Then, Jijii is hung...possibly by the child.
You see him walk off in the end.
So basically, Kakihara wanted so badly to die by Ichi's hand that when he learned about who Ichi was, his mind couldn't take it, and had to compensate.
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The bats have left the bell tower
The victims have been bled
Bela Lugosi's dead
Undead undead undead
The virginal brides file past his tomb
Strewn with time's dead flowers
Bereft in deathly bloom
Alone in a darkened room