I think it is an issue, but it's a bit overblown. Western and Japanese companies have mismanaged this Gen. EA, THQ, etc have had their problems as well. While Nintendo, Activision, Bethesda, etc has been Successful. Initially, a lot of Japanese devs couldn't use Unreal Engine or western developed engines, because they had difficulty understanding the UDK which were a lot of times in English. So that was a major thing that set them back. For whatever reason, they were inefficient at setting up their own engines.
The population of Japan is like 1/3rd of the US, and that's not even including all of Europe, or Canada. So if the other Regions improve or get close to their potential, the marketshare of Japanese things is inevitably going to become smaller.
Some Japanese companies have released, and navigated the western market somewhat successfully. They buy and establish studios in the west to appeal to the west. Sony has an array of western developers and IP's. SE despite expecting too much to offset their Japanese Mess, has made a profit and had critical success with western games like Deus Ex, Tomb Raider, Sleeping Dogs. Ofcourse they're going to have more issues away from their home region, the mindset is different. And Mobile games are more popular in Japan. So their console games are going to definetely be aimed at a western audience and there are and have been growing pains. Before they could make a Japanese game on console and it didn't have to fare that well in the west as long as it did good in it's home region. Now that isn't the case so much.
Western Devs, haven't been that successful in Japan, either, M$ has tried tried and tried, and games that are like CoD, and Ubisoft ones, have SE publish it for them.
