You need to go back and study what NOA was like in the 90s. They certainly had (sometimes very broad) power to greenlight game projects on their own. 

Most of Arakawa/Lincoln's work in the 90s was quickly undone after Mr. Iwata became president (offically in May 2002, though really he was already operating in that position for some time before that, Yamauchi basically effectively retired from day to day operations in 2000). I attribute much of this to Iwata, but also probably to the general Nintendo seniority (Miyamoto and others at the top are probably responsible for a dramatic shift in Nintendo's strategy to move away from Western devs). 

Iwata and the Nintendo today is biased IMO. If Hideki Kamiya was Henry Kelly, a developer in California or something, IMO Nintendo wouldn't give him the time of day in financing any type of title.

We know studios like Factor 5 and Silicon Knights wanted to continue their relationship with Nintendo. So did Rare. Nintendo is the one that ended those relationships. We also know they haven't been very proactive in replacing much of this lost production either. 

Virtually every Nintendo game sells better in the West than Japan. There's only a few exceptions. 

Which actually doesn't do much to dissuade my point ... if the majority of software sales (and hardware sales for that matter) are in the West, why is Nintendo going backwards and becoming even less Western-development oriented than they were in the 90s? 

It makes literally no sense. 

The Japanese aren't even buying these "Japanese games" that they continue to finance ... Wonderful 101? Bayonetta 2? Likely to bomb. Hyrule Warriors? Nothing impressive sales wise. The Last Story? Not a big hit. Devil's Third? Don't expect the Japanese to support this at all. 

Why not finance say a game from the Darksiders developers or something? It's just kind of baffling to me, it's almost like they are greenlighting the above Japanese titles as  favor to the Japanese dev community. 

No, Nintendo still had very strong Western relationships up until the early 2000s. NOA probably had its peak autonomy in 2001 or so when they were allowed to market and sell things like Perfect Dark, Starcraft 64, and Conker's Bad Fur Day. 

It takes a nose dive after Iwata takes over as president, and as president the buck stops with him. None of that would've happened if he didn't want it to happen. 

Also Iwata pushing for Silicon Knights to make a Metal Gear remake instead of bringing something new to the table just perfectly illustrates what Nintendo thinks of Western studio development -- they're basically just cattle to work on Japanese IP that the Japanese teams are too busy to do themselves. Eternal Darkness was greenlit under Lincoln/Arakawa, but it never would have been under Iwata. 

It's the same philosphy they basically employ today ... Retro, Next Level Games, Monster Games are basically the only three studios in the West they will work with, and they're only allowed to work on Nintendo IP that Nintendo themselves is too busy to work on over in Japan. And only one game at a time. 

Note too when I say Iwata, I am referring to the general "Iwata-era" which also includes people like Miyamoto and Takeda taking on higher roles on Nintendo's board of directors.

It is kind of odd that Nintendo has pretty much disengaged from the West, whereas in the 90s they were much more of an East + West company. Why the change and is it warranted? Especially when the West now is basically the entire console market? It seems to basically all trace back to Iwata and even Miyamoto moving up the ranks on Nintendo's Board of Directors. A few points I'd raise:

- Iwata after being groomed since about 1999/2000 takes over as Nintendo president officially in May 2002. His first major move as president? Selling Rare to Microsoft in September 2002. Despite spin at the time that Nintendo would use the money from the sale to invest in a similar Western studio (Zoonami was thrown around a lot), this never materializes. 

- In basically two years, Iwata dismantles pretty much all of Nintendo's Western relationships. Silicon Knights is out. Factor 5 is out. NST is downsized to a Mario Vs. DK studio. Left Field is out. The deal for Star Wars exclusive games is not renewed. Nintendo Sports is shuttered.

- Now you may say 'b ... bu ... but Retro!", but Retro opened in 1999 was supposed to supply Nintendo with *multiple* games in genres like action/sports/shooters at once. That was Howard Lincoln's brainchild. Under Iwata, Retro is stripped down to one team and kept under an extremely tight leash where they only work on Nintendo IP. The same is basically true of Next Level Games (one game at a time, on a Japanese Nintendo IP only). Nintendo does work with a very small handful of Western companies, but basically only lets them work on Japanese IP that they're too busy to do themselves. No chance of an original IP like GoldenEye, Eternal Darkness, Killer Instinct, or NBA Courtside being greenlit here. 

- Under Iwata, Nintendo finances many different 2nd party Japanese titles ... The Last Story, Bayonetta 2, Zengeki No Rengleiv, Endless Ocean 1/2, Pandora's Tower, Fatal Frame IV/V, Devil's Third, The Wonderful 101, etc. etc. etc. Yet they never do this with any Western developer, even though Western devs like the Darksiders guy did make advances towards Nintendo. Nope, Nintendo only bails out a project, like Devil's Third or Bayo 2 if it's a Japanese developer. Tough luck if you're American/European. 

- Monster Hunter was a huge hit ... in Japan. Notice how Nintendo moved quickly to secure that as exclusive? But what about Western trends? They apparently won't even talk to the Minecraft people ... how much do you want to bet if Minecraft was a Japanese IP that there would be considerably more outreach from Iwata's Nintendo on it? You'd probably be able to play it on your Wii U/3DS right now if that was the case. 

- Another example of Nintendo's complete disengagement from the West ... Activision actually apparently offered Nintendo exclusivity on the Skylanders franchise while it was in the conceptual phase, Nintendo basically told them "thanks, but no thanks". 

- All their crossover games too are basically Japanese collaborations only. Hyrule Warriors, SMT x Fire Emblem, Metroid: Other M, Pokemon Conquest, Mario & Sonic are fair game ... but doing that with a Western IP ... nope. 

- NOA is basically stripped of any real power they had. Reggie mentioned they liked Media Molecule (LittleBigPlanet) too and had them on their radar but Sony beat them to the punch. I really have to wonder if a lot of that has to do with NOA having no real power to make deals anymore. Iwata basically granting himself presidency over NOA when he himself admits he doesn't understand the Western market as well as Japan is just incredibly non-sensical. 

I'm not saying supporting Japanese development is bad, but really the above points to a bit of a disturbing trend of bias. I understand Iwata comes from the Japanese game developer community and maybe views it like a fraternity where deals are inked over glass of sake, but really there should be no excuse for Nintendo to be a more closed off Japanese company in 2014 than they were in say 1997. 

Other games like Mario Sports & Party games get made by mostly western studios (owned by Ninty) even the original Star Fox + Adventures + Command and Luigis Mansion 2 were all or in collaboration made by/with western folks. It's not so much of bias, its just the way it is.

Look at Sony, do you think they want to lose the fans of their homeland? because theyre so biased against Japansese devs? No Sony just has more luck and does better bussiness with western studios and Nintendo with Japanese studios. Ninty owns just as much Japanese studios as they own Western but i agree that they usually prefer their Japanese side, like Sony their western side.