And Gatland admitted that he loved the Scarlets flanker's response, having named him among two changes from the side that beat Australia eight days ago.
Davies replaces Justin Tipuric for a World Cup debut, while Ross Moriarty packs down at number eight and Josh Navidi switches to blindside flanker.
"When I congratulated James and said well done, his reply was, 'You have finally seen the light, have you?' He said he was only joking," Gatland said.
"I loved that. I thought it was brilliant, a great response. I love a bit of banter like that and I have no problem with comments like that.
"It just says to me that players believe in their own ability and they want to be in the squad and they think they are good enough to be in the starting side.
"Justin was disappointed, but he will probably start the game against Uruguay and bring some experience to that side.
"He was tight in his quad (thigh muscle) before Australia. He was 100 per cent fit for that game and he was 100 per cent available for this game as well.
"We are trying to look at that bigger picture."
Gatland has otherwise kept the starting line-up that accounted for Georgia and Australia in Wales' first two World Cup games.
Davies will feature alongside his brother - centre Jonathan - as Wales target a third successive World Cup victory over Fiji following successes in 2011 and 2015.
And fly-half Dan Biggar, who failed a head injury assessment during the Wallabies clash in Tokyo eight days ago, is fit to resume.
If Wales beat Fiji and then defeat Uruguay next Sunday, they will reach the last-eight as unbeaten group winners for the first time in a World Cup campaign since 1987.
Gatland added: "When Fiji get some confidence and belief they are incredibly dangerous and they were really strong in that second half (against Georgia).
"They have got some real threats and we have just got to make sure we focus on ourselves.
"They are dangerous, so we've got to make sure we shut their space down and shut their time on their ball.
"One of the pleasing things of the first two games is how we well we've started.
"Our starts have been exceptional and it is important that we start well on Wednesday and hopefully take a little bit of that excitement away from Fiji.
"We are in control of our own destiny, we know that, and there are a lot of benefits about winning the group in terms of turnaround time and choices of hotels and stuff.
"Psychologically, you win the group and win your four games, you are up against a team that has lost a game. We haven't spoken at all about potential quarter-final opponents.
"It is important we focus 100 per cent on Fiji, and then we have got a four-day turnaround to Uruguay, which is going to be challenging as well, and then get through that and then we can start thinking about what's further on down the line."