Seems like they are adapting to this generation fairly slow.  Obviously the high prices of the new systems doesn't help but maybe gaming in Japan will not be as big this time around?  Or maybe there is a shift to handhelds such as DS and PSP?  Back in the day all my favorite games where made by japanese developers but now on the 360 of the 8 games I own only dance dance revolution is from a japanese developer.  Obviously that is slanted since the 360 obviously doesn't have a alot of japanese support though capcom, namco and mistwalker have been very good to it.  I think what has happened is that american or western companies like EA, Ubisoft, and activision to name a few have started to release alot of high quality games this generation that I think have overshadowed the Japanese developed games.  It is the reason the 360 is just doing so well in America.  If we keep getting these high quality games from American companies will Japan even matter?  What if the hardware sales don't pickup mainly for the PS3 and 360 does it mean a shift to simplier more casual gaming in Japan?  I mean in Japan games like gears and dead rising get what basically equals an AO rating though here in the states we enjoy the hell out of them.  I mean Ninja Gaiden 2 might not sell well in Japan but is because of the 360 or because it is giving that rating because of the violent content.  Obviously it could be both but as games become more real and mature will japanese gamers stop buying them?  I mean supposedly they love rpgs but what happens when those games become more mature or bloody with villains showing how brutal they may be etc.  Not sure if people remember kefka from FF3 but that guy was pretty evil.  Guess they can always hide stuff and make it pg-13.  With all that in mind will Japan matter in this generation?

 I say it won't matter especially for me as there are plenty of games not being made by Japanese developers or geared towards a Japanese audience that should keep me entertained for this generation and beyond (no pun intended).  Seems most of the companies making good games on the 360 are making money so I expect them to continue to support it wether Japan pans out or not.  Just to be clear this also applies to the PS3 though I used the 360 as an example I think the PS3 will be very similar in terms of the support it has and will have. 

Japan is a money farm for certain genres.

Will Japan matter to the 360 (which seems to be your real question)? I'd say not really. If the 360 can get a strong consumer base without Japan and start turning a profit, they've already scored a major victory. Japan would be icing on the cake at that point.

For Nintendo, Japan matters a lot. If Nintendo can own Japan and Microsoft can lockin the U.S., Sony will get crushed in the middle. In which case, Microsoft wins... again.

Japan Matters a lot
The 360 is f**ked
Accept it, live with it

I don't think that is true at all. Wii has sold 3.71 million in Japan (more than in Europe), a country that has less than 1/3 the population of the USA, and if you compare to Europe it's even less favorable. Consider that Japan, has bought half as many current gen consoles as europe/others it doesn't seem to bad does it? Now consider that the percentage of the population that is over 65 has doubled and the percentage of the population under 14 has been cut in half in the past 15-20 years it starts to make sense.

Right now is just a slow period in Japan and things will pick up again in a couple weeks.

My real question is will Japan matter for gaming based on some of the trends such as more realistic or mature games on the 360 and PS3. Could that be one of the main reasons companies are moving their games to the Wii or even the DS since they can keep them from being too real? Will the Wii just crush the 360 and PS3 over time similar to the DS and PSP? Another reason I bring this up is because people are expecting big sales from Japan this generation when maybe that may not be the case.

I prefer games from Japanese developers with Nintendo being my favorite developer (and the most popular in the world). Hardcore gaming appears to be losing some stream in Japan and casual gaming seems to be gaining some ground. Maybe this is also true in America. The Wii is the most popular system in the world and almost all of its great games have been from Japan. Japanese consumers are upgrading to Wiis, DSs, and PSPs. I really don't understand you point.

My point is will Japanese gamers dump the 360 and PS3 for basically just cusual gaming then Japan will lag in terms of gaming behind the USA and Europe. It won't be this huge market that people keep saying it is of course unless your Nintendo.

In terms of too real my best example would be Ninja Gaiden with all the limbs flying all over the place that look better because of the HD graphics. I am sure the Wii can possibly do that but will the Wii owners buy into such a game?

You sure they can just put any game?  There have been alot of flops on the Wii with Nintendo published games being the big sellers.  I mean this could change as developers spend more time with the Wii etc but right now I don't think you can just put any game and hope it will just sell because of the installed base is so big.

Once upon a time, Japan did indeed set the trends for the gaming world and even today it still does to an extent.

However as Microsoft continues to cater to a mostly American audience and provide western entertainment which appeals Americans versus Japanese, their may be a bit of a divergence coming.