Itigaki has an axe to grind though, and arguably is responsible for a lot of the trends that represent Japan's game development issues. I look back at the whole "Ninja Gaiden" thing where the guy is so anti-western that he set up the western version to play one difficulty level higher and then released what amount to the normal/defauly level with an insult calling Americans dogs. I still remember this. Of course he now believes that he's been cheated out of millions so of course he has an axe to grind with the gaming industry and would love to think that it's dying.
The overall point is correct however that Japan has so much inherant racism that anything they develop with an outside market in mind, or plans to release to an outside market, meets with a lot of domestic scorn. I've talked about this before, based on what I read a while back in a lot of translated periodicals and such. Part of the basic problem is that if game-series "X" (whatever "X" may be) sees a US translation/release then a lot of the Japanese go absolutly ape-crap and start accusing the developer of being a group of race/cultural traitors, betraying their unique and special things to the "round eyed child races".
This is apparently more of a factor than you think, and since these guys live there you kind of see why it might be a problem. Trying to balance domestic sentiment with profiteering off the bigger American and European markets is an issue.
Compounding the problem is also censorship, not just current issues, but ones that have been ongoing for a while. A lot of creators (for obvious reasons) don't like having their visions messed with for a US release. This can include sex, violence, or just differant ideas on what is going too far. One example from a while back is of course "Xenosaga" where there is a substantial differance in how a certain bad guy removes a special macguffin from a humanoid construct that looks like a little girl (attempting to avoid spoilers). The Japanese version has him brutally ripping it out, the English translation has him waving his hand over her, conjuring a sphere of light, and collecting that. The former "original version" making a heck of a lot more sense overall.
So basically to release to the US there are race issues, creativity issues, and other factors. The current economic problems of course don't help, nor does the censorship crusade which no company has the nards to stand up to at this point, nor does America getting increasingly complacent in pushing it's own culture. This latter point tied to the fact that in more successful decades the US was pushing through shows like "Melrose Place" and "90120" which lead to more popularity of America and it's own ideas (to the point of some nations fearing they were losing theirs to ours) but we stopped pushing such things. In backing down, playing along with information embargos, etc... we've also hurt our trade and again a lot of the "OMG I want this to go to America" sentiment.
I point this out because a while back I seem to remember reading about how less and less translated American television was being shown in Japan. It's been a trend for a while, and I think that to an extent it's made relations a bit more sour culturally.
Feel free to disagree, a lot of this is based on trends I've noticed and things I've read going back years.
I don't think the Japanese game industry is finished, but I *DO* think the game industry as it stands now is finished. I hope the censorship is licked, but any way you look at it I think part of their problem is exactly what Itigaki (surprisingly) seemed to say: they need to be more receptive to global marketing. Basically drop all of these "Japanese exclusive" crud.
Back a few years ago they were able to snub America with Final Fantasy X (International, and Final Mission) things are however changing and despite how much "fun" that was for a lot of their gamers, I'm guessing they are having trouble meeting their bottom line being Japaneo-centric.
