The opposite is true actually ... Japanese developers NEED the Japanese market. 

There's like 3 or 4 total Japanese IP that can sell around the world that are not from Nintendo. 

That is not a viable business model. How is this going to work going forward? PS5 will be what, 6-10x more powerful than a PS4? So Japanese developers will have to spend even more money and time making games for a buyer base that continues to shrink on them ... this is not a viable strategy. That is suicide. 

If anything I think increasing graphics fidelity is hurting Japanese game appeal, because the more realistic the graphics get the more silly Japanese touches to character/world design look to Western audiences. 

A bit overreacting, OP. Even what you said become the truth, let it happen because they choose their path. I would love to see that happen, soon or late, it will be fun

It wouldn't be fun at all. The industry would be just Western games, Japanese devs would be stuck on iOS/Android ... I'd be done with the industry most likely. I don't like Western games enough to keep spending $400 just to play those types of games. 

The industry that I grew up with, and yes that includes even the legacy of the Playstation, would essentially be dead. 

But what about those companies that don't want to do that and still be a major player on the world stage? That's like asking Honda to retreat back to making cars for the Japanese market only. I find this whole thread ironic considering its the west that made Nintendo a household name to begin with, considering they took a chance and picked the up pieces of the console market when Atari and other such platform makers fizzled. These companies are international conglomerates now. That does nothing for us if they retreat to a Japan first strategy. We'll be seeing less and less games be up in the air when it comes time to be considered for a port to the west. FF should never come to a point where they'll have to do an Operation Rainfall just to come to the west.

and you know this how?

You act like if a Japanese game developer don't make +1mil in sales their game is fail. Well let me hit you with some knowledge, games like Tales of series, Persona, Yakuza, etc are all successful. They don't even need a million to be a success. And guess what, they don't push for high graphics.

Of course, Soundwave. As we can all see in this here gray box I posted, everything points towards the series being in an unprecedented state of doom and gloom in Japan. So it goes without saying that the only possible logical reasoning Square-Enix should have in their mind right now is that they need to be saved by none other than Nintendo. The same Nintendo that has been struggling to remain relevent in the home console market for the last 5 years... 
What sound arguments you make (sarcasm and pun intended).

Why do you keep saying that? lol

There are many dozens of Japanese IPs that sell better in the west than in Japan. In fact most JRPGs sell better in the west than in Japan.

I don't know about saving the Japanese market but I think it'll be great for the industry (especially Japan) if Nintendo can get good support from 3rd parties. If what tech experts and those familiar with Nvidia and such (such as the videos I posted sometime ago about the Switch's hardware not being as big as a problem as we keep assuming it would be), and the fact that some devs are confirming that Nintendo is reaching out to them, then there's no excuse to at least try to provide a little more than the bare minimum of support (i.e., Mass Effect 3 instead of the whole Trilogy, no DLC from Watch Dogs, etc.). If DQXI is similar to that of the PS4 in terms of design and that Skyrim Remastered is coming, then that shows that the system should be powerful enough to handle most of Japanese games coming or that already released.

With Splatoon being the game of the generation for Japan and Pokemon, Mario, Smash, and Zelda remaining relevant WW, Nintendo can go up from where they are at the moment. Though apparently there's only one way to go anyway, and that is up.

You might want to actually read the article, here I bolded it for you. It's the first FF with a simultaneous worldwide launch, of course it was going to be the "best" launch-day in the history of FF. That means nothing. Pokémon Sun and Moon are the fastest selling Pokémon games to date, but that doesn't mean they're all of a sudden going to outsell Pokémon Red and Blue. You're just spinning the narrative in your favour. Also that 5 million figure is SHIPPED, not SOLD. Shipped means nothing if loads of copies remain on the shelves.

This is the first main-line entry into the FF franchise since 2009 and it saw a huge decline in Japan, it's home country. That is a worrying sign. Over 7 years in development for this? It's bad. A large chunk of sales from each FF entry has always come from Japan. Don't overestimate the franchise's importance in the West. It needs both Japan and the West to survive.

Monster Hunter, Yokai Watch and Pokémon are all far better off than Final Fantasy is. They don't have to struggle with overly long development cycles or ridiculously high development budgets. Since 2013 the Yokai Watch franchise has managed to sell over 12 million copies, with most of those sales coming from Japan only. And we're not even taking into account all the profit they made from selling merchandise and toys (where FF is not nearly as succesful in). Monster Hunter 4 Ultimate saw the highest sales in the West in the franchise's history, so it's not like chosing Nintendo means giving up the West like some people make it out to be on here.

And obviously digital sales are going to be higher now, this is the first FF game that has digital sales since day 1. That's another meaningless achievement. I heard Pokémon Sun and Moon sold more digitally than the first two generations of Pokémon combined!

Final Fantasy really has fallen way down the list of top Japanese franchises based on Japanese sales. Monster Hunter, Yokai Watch, and Pokemon all have one thing in common -- they're all on the 3DS which is the Japanese market leading system. That kinda helps.