In my opinion Japanese games havent fallen in quality at all this gen, Games like Nier and Atelier Meruru (and in my opinion FFXIII and XIII-2) are some of the best games to come out of Japan, ever, even the 'not the greatest' ones this gen like Xenoblade chronicles and Tales of Xilia are very good and far beyond the majority of old JRPGS,
Its just that the 'rest of world' market has shifted away from Japanese gaming, they dont make games in the fields that are popular at the moment, you are (hopefully) never going to see a Japanese call of duty or halo game and the western rpg market now craves open world wanderfests with minimal 'linear story' (read narrative & well developed characters)
In my opinion the height of the western RPG age was baldurs gate 2 shadows of amn (pc) and planescape:torment era, starting with neverwinter nights and morrowwind it has got itself into an almost unplayable state (literally (eg bugs) as well as figuratively)
but then I dont at all represent the target audience so my opinion is way off the norm there.
In short waht I'm saying is I think if you asjked a japanese gamer about this gens quality of jap games (in all genres) you would get a very different response to what most western gamers would give. When a style a particular country specialises in is 'out of fashion' currently its always easier to be harsher to their games, it'd be a bit like turning up to a black tie ball in a modern day 80's style dress, it may be considerably better than any and all dresses in the 80's but everyone will judge you hard if its not in with the current trend in that particular place/region/venue (sorry I'm more fluent in fashion than gaming, but thats my attempt at an elaboration)
Just my thoughts on the matter