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I don't think Iwata needs to be replaced per se. He seems adept at handling the Japanese market, at least the handheld side anyway.

Nintendo is a company missing its second half though, they need a new person to be in charge of NOA/NOE who makes decisions with consultation from Iwata, but has a lot more autonomy. Nintendo also needs to take into consideration the entire global market when making hardware, not just the needs of Japan (read: Wii U).