I am reading this as Itagaki saying that the Japanese gaming market as opposed to the Americas market and EMEAA is losing influence because of demographics. Japan having the 2nd highest life expectancy in the world, a quarter of their population retired or nearing retirement age, and a low birth rate (1.2 children/Japanese woman), then yes the Japanese gaming market in the future will be smaller and not a smart investment for Japanese gaming companies to focus on and develop for as opposed to other markets.
This is why Sony is so focused on emerging 2nd world markets. There will always be a Japanese market, but not to the extent it was in previous generations.
As for comments regarding Nintendo having 9 of the 10 best selling games in this generation, Nintendo did that by catering specifically to the Americas market. Canadian, American, Mexican and other Americas market gamers were primarily responsible for Wii Fit and Wii Sports selling over 20 million.
sony is not focused on emerging markets because of japan market going down but because as emerging markets get richer,there are more areas to make money
we don't know how japan market will be when FPS genre dies which is the main reason this gen people aren't purchasing japanese stuff