Mega Man Legends 3 getting canned got me researching and thinking a little bit.
The way I see it, the reason Japanese-produced games have overall been in a decline is that Japanese business culture is toxic to game development and quality control. The guys that end up in charge of Japanese companies are, as a rule, the guys that know business, not necessarily the guys that understand how video games work. This has the effect of a management with full control over development that don't quite get what's actually good. It also creates an interesting paradox: Big AAA titles demand a huge development team, but without management that gets how games work, they can't manage the product bloat or judge quality, and basically pimp out names that used to mean something. This is obviously just good business sense if you don't really follow video games, but those kinds of investors and management types are mostly limited to the Activision / Ubisoft / EA monoliths in the west. In Japan, pretty much every big studio suffers from this except Nintendo, who have their own problems. Obviously I'm talking about Capcom, but Square-Enix, Konami, and Sega are all guilty.
These guys have the problem of simply not understanding what their products can reasonably do. I'm going to be talking about Capcom here because that's what I did research on: Legends 3 got canceled because their Devroom blog never broke 1M hits consistently...despite not having a demo, extended gameplay demonstrations, or anything of interest to non-superfans, the demo being pushed back and then canceled, etc. etc. Devil May Cry 4 was a failure because it didn't break 5M sales in the first week, when DMC3, the best-selling and most critically lauded game in the series, only sold 1.3 million copies over five years. Street Fighter IV singlehandedly revitalized tournament fighting games. Before them, we had Guilty Gear and basically that was it. People were still playing on Dreamcasts and even arcade machines, for christ's sake.
SFIV comes out? We have BlazBlue, MvC3, tournaments are bigger than ever, we have proper arcade-perfect ports on next-gen consoles, and even decent arcade sticks. All because of one game. Capcom still wasn't satisfied though, so they did what made them infamous: Rerelease. They entirely ignored the possibility of DLC simply because saving a genre wasn't good enough, they wanted to make those sales back all over again, so Super Street Fighter IV came out, even rereleasing the SFIV-branded controllers. Marvel vs. Capcom 3's DLC was canceled because it didn't do Street Fighter numbers, even though MvC1 and 2 didn't even top Third Strike, the worst-selling game in the series. Mega Man 9 and 10? Same thing. I've heard stories that Final Fantasy XIII was considered a failure because it didn't break a worldwide record, despite the eastern and western release dates being three or four months apart, but I can't find a source.
You can see people that know their shit getting fed up. The exodus from Square to Mistwalker, from Sonic Team to Prope, Capcom to Platinum...Hideo Kojima's been trying to get away from Metal Gear since MGS2. I think this is going to be what saves Japanese games, if anything does: Competent developers are leaving the lumbering giants that their companies have become, the franchises that were once great will wither and die as they lose the talent that made them, if we're not lucky, this'll be a Japanese video game crash that will probably reach America to some extent. if we are, it'll be a rise-from-the-ashes thing that might re-invigorate Japan and get us back to the quality that made an entire generation of weaboos.
