To be honest, the fact that many of gaming's biggest brands and companies are concentrated in Japan and only Japan is crazy if you think about it.There's also surely going to be influence on whats been available to skew gamers to western games which makes them more money.
Western gamers grew up with a mix of console and computer gaming. Although consoles always skewed to platformer and arcadey games which were heavily based on Japanese games, PC is totally different kinds of games. So for many of us, we grew up playing all kinds of games.
However, I think Japanese gamers have historically been focused on Japanese made arcade and console games. Not much of anything else. I dont think PC gaming has ever been big there. So for that market, they never got exposed to such a wide breadth of genres and games across hardware from when gaming ramped up in the 80s. Foe example, how many gamers in Japan played Ultima or other archaic WRPGs on Apple or PC or Commodore? Probably not many.
Western developers should be 10 times as big and succesful if not more, so the success and gaming market in Japan being as big as it is, shows how much support the rest of the gamming world shows them.
That's why i said not to worry, they aren't doing bad, just adjusting. No they won't offer the same things western developers do anymore, but they are still a big driving force within the industry, both creatively and design wise