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There are many large factors that lead to the "fall" of Japanese developers. Minus Nintendo, of course.

One being that they largely moved to handhelds, so it seems as though their home console presence has been diminished. Two, Western developers have overshadowed Japanese devs. so much, recently, that Japanese devs. just can't seem to keep up with their output. Be it quality or not.

Japanese Developers, however, are not as bad as some people make them out to be. Sometimes they go overboard on certain aspects (Really overboard) but there are still some good games being pushed out by the East.