Well my take on Japanese games nowadays is I look back to what I played as a kid. PS1 and PS2 really felt like the glory days for Japanese games... literally everyone I know played games from series:
Resident Evil
Devil May Cry
Final Fantasy
Metal Gear Solid
Tekken
Gran Turismo
Countless Square Enix RPG's.
When I look what we're all playing now and whats happened to most of the series above I can see the worries. I don't totally know what happened but for me Japanese games just don't cut it anymore. I think they just don't get what the mass market person who buys COD / AC / FIFA every year want in the same way EA do. Like EA made Mass Effect, Dragon Age, appeal to that type of guy... *shrug*.
I am hoping to reconnect with the Japanese type games now I own a Vita though. I'm guessing the best / most nishe stuff is only on handhelds now so hopefully some of it will come over... Disgaea 3 is out soon so we'll see how that goes. I have a feeling the anime vibe / cut scenes could kill it for me though lol.