Why does a Java Compiler not produce an unreachable statement error for an unreachable then statement?

The behaviour is defined in the JLS description of unreachable statements:

The then-statement is reachable iff the if-then statement is reachable.

So the compiler determines that the then-statement (break;) is reachable, regardless of the condition in the if.

And a bit further, emphasis mine:

A basic for statement can complete normally iff at least one of the following is true:

• The for statement is reachable, there is a condition expression, and the condition expression is not a constant expression (§15.28) with value true.
• There is a reachable break statement that exits the for statement.

So the for can complete normally because the then-statement contains a break. As you noticed, it would not work if you replaced break with return.

The rationale is explained towards the end of the section. In substance, if has a special treatment to allow constructs such as:

if(DEBUG) { ... }

where DEBUG may be a compile time constant.