Not only do I think Japan is relevant but I see them as the 'Canary in the Tunnel'. They are the forecasters of what's to come in the rest of the world, to an extent.
DS and PSP are doing great. Wii is doing great too. The issue with games not selling like expected on Wii is the Wii has a broader audience than any seen before (except DS) but the games currently are the same games that have always been there and never appealed to those 'non-gamers' before. So why would they now?
Nintendo needs to find the equalivalant to Nintendogs, Brain Age, English Training etc. that work for well on the DS for the Wii. That's where Wii Fit comes in. Non-traditional players need non-traditional games. But the Wii is different than the DS and it'll take some time for Nintendo and 3rd parties (who mostly just follow Nintendo) to find what works for them on that platform.
Nintendo knows what it's doing, but even they were caught off-guard with the immediate embracing of the Wii by non-gamers. They have plans on how to capitalize on this new market and what works in Japan will eventually work it's way to the rest of the world.
As for 'traditional' gamers in Japan, they'll always have a place but have been in decline for quite some time now.
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