I think multiple reasons play in.
First off, I will argue that the last gen were the point where typical PC type games, and console games truely met, there has always been crossover, but not at the scale of last gen. I suspect that Japan always had a Console focus where alot of the western Devs used to be PC mainly devs (and fairly bad ports). This is also why we saw such a surge in MP focused games, two gens ago consoels took the first small steps towards the kind of Multiplayer setups PCs tended to have, but local multiplayer had been the focus.
The console gamers seemed to vote that they preferred the games that was usually on PC (FPS blew up, WRPGS became mainstay) where before they might have had a foothold at best, and a distant shadow at worst.
Then at second we had the cost, Most Japanese Devs are not as big as a lot of people might think, where the western games tended to have fairly huge financial backings, a lot of us remember the writings about how much game development increased last gen. The smaller Japanese games in general simply could not make games which could output graphics on the scale of its western counterparts. Which is why we saw the death and vanishing of the great Japanese Devs and publishers. Many of those companies are not just shadows of their former selves.
Third point would be that Japanese Devs and publishers are very traditionel and rigid (or were), most things were made in house, and the people in charge had the visions of whatthe game would be, everyone else would work to make that vision come true.
In the west we operate very different, Devs and publishers are in way closer talks, inputs and ideas are shared, tech is explained, taught or even shared. Meaning that the Western games saw incredible growth in terms of tech and ideas. The rigid structure of the typical Japanese dev houses exist to a way less extent here, and alterations to the tops visions are often seen, as people such as coders and such, might find something amazing that is able to be done in the engine, and the games changes to include that. So a much more flexible development cycle (Not sure, but that would make the dreaded crunch time much worse here in the west, as things would ideally be more planned out over in Japan).
A Personal point is that maybe Japanese culture had a big role to play. The Japanese historically have had this obsession with perfecting things, including other peoples works. It is not like in the west where we would often look down on such attempts, but throughout 4+ gens we had seen what had become a stagnation in a lot of Japanese games, because they were at its base often attempts to create a story or a game we have seen before, but making a newer better version. I am unsure if Japanese culture still has that obsession, but they had up til fairly recently.
And finally my oddball argument: I will argue that the huge influx of mainstream consumers did a bigger part, We often hear the moans about CoD bro-gamers and such. Frankly? there may be a good point to this, a new generation of gamers did seem to appear which were interested in things they could relate to only. Becuase I find it rather odd that people claim that the Japanese Devs fell behind, when so many great Japanese developed games were made, but they simply got no traction in the west.
Demon's souls, Valkyria chronicles, Super Mario Galaxy, MGS4 (ah crud it, just look at Char's list).
Of course as always, just my guesses, and thoughts, nothing should be taken as a golden truth :P
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