The problem is more with the stagnant entertainment industry in Japan in general. They've been struggling to thrive in a global recession, and the impact can be seen in every aspect, both with film and tv as well as video games.
Most Japanese game developers are taking few chances with their popular titles and genres, and RPGs are of course the first on the chopping block. With less money to go around, they're going with safe bets to maximize profit and minimize potential loss. I think that's why we've seen so many RPGs regurgitating the same tired tropes and cliches that are proven to sell in Japan (I call it "Tales of Syndrome"), because to stabalize their income, they feel they cannot afford to take risks and chance alienating a finicky Japanese audience.
Final Fantasy XII is a prime example of this. Yazumi Matsuno is a visionary, and the man produces some of the most critically acclaimed RPGs for the Playstation (Final Fantasy Tactics, Tactics Ogre, Vagrant Story), but the thing is, they've not always been super blockbusters sales wise in Japan, because they are VERY different kinds of games. They don't take place in some sci-fi fantasy setting, they don't star a bunch of stylish teenagers, theyplot centers around gritty medieval political turmoil, and they are brutally difficult.
Square executives handed him the reigns to FFXII, and during the entire process, they kept trying to get him to change things to make it more palatable to the mainstream Japanese audience (rewriting the characters and plot etc), to the point in which his vision was compromised so much that he just decided to walk away from the project (which I completely respect). Why the hell they ever thought he would just pump out a game that would be like the previous FF titles, I'll never know. Now YazMat is supposedly working on a game at Platinum Games, but he had to walk away from his Ivalice world he spent the last 12+ years developing, because Square owns all that IP.
It seems to me that the people who used to innovate in the genre in Japan, are largely gone from the development scene in all significant regards, and what we're left with is a bunch of games that follow the tried and true successful formula, and it just doesn't cut it overseas. While not anywhere near perfect, it's just a fact that European and North American game development are just generally surpassing Japan in a lot of significant ways. Hell, even Capcom's Keiji Inafune admitted to this, which that kind of pessimism is generally unheard of over there, at least in the public eye.
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