The main reason why Japan has become irrelevant today is because they are not into PC gaming. These are what they lacked by ditching the PC platform.
1. Game Engines - In Japan, the use of engines like Unreal, Unity, etc. is fairly recent. What they usually do is create a game engine for every game. As technology advanced, using game engines like Unreal and Unity has become more cost efficient. But as they turn to these engines, they are already very behind in the technological know-how as the West have been using these for a long time and they aren't adept at English.
2. Mods and map editors - These tools are the hallmarks of PC gaming. It is how MOBA was born and so is Counter Strike. The Japanese aren't exposed to these tools because they do not game on PC hence their lack of knowledge of using such tools. And without these freely available tools, there's no creation of content. Again, the inability to understand English is going to make it harder for them without any attempt of localization.
3. Digital Distribution - It is because of this format that indie games became widespread and with it the desire to create games independently. In Japan, DD is unpopular. They are stuck in the past with the traditional publisher-developer relationship. Indie games from the West have to be published over there. Strange, considering the very definition of indie is being independent (lack of publisher).
So you see? It is PC gaming that is at the forefront of the industry. It is where the ripples of change start. Consoles this gen are just PC wannabees.