They're not wrong, Japan's talent fell off a cliff around the mid to late 'aughts in cataclysmic fashion. I still have no idea how they went from producing the undisputed best games in the world that were technologically a generation ahead of everyone else, to putting out mostly abject trash from the HD era on.
Cultural difference in game design.
Japanese studios were building games with fresh new engines for every game or nearly every game. These games didn't sell big numbers in many cases because of poorly conceived exclusivity deals, but also because they weren't as advanced in many cases as games that were built on Unreal, Unity, Maya e.t.c.
As Japan pushed gacha games and F2P games, their audience moved more to mobile and handheld and collapsed their console market.
Outside of Nintendo, with the exception of Elden Ring and FromSoftware, you don't really have studios putting out big hit games like GTA, Red Dead, CoD, Cyberpunk, Witcher, God of War, Uncharted, The Last of Us... Even Ghost of Tsushima outdid what most Japanese publishers can consistently produce. Nor do they have the annual releases like Madden or 2K.
Square Enix lost most of its talent in the 90s and early 2000s. Talent left big publishers across the Japanese market to strike it big on their own, largely without success as everyone wanted to work for themselves. They used to have the best looking games with the largest worlds.
Capcom is probably the only real exception to that as they've been able to revitalize Resident Evil and Monster Hunter became a global success.
If they're going to have success again in the AAA space, they're going to have to rally around the PS5 and PC and work on games with larger scopes.
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