In 1997, Final Fantasy VII sold 4 million copies in Japan, and in 1999, Final Fantasy VIII sold 3.5 million copies in Japan.
In 2016, Final Fantasy XV sold 1 million copies in Japan.
A question becomes "Where did all these people who played FF7/FF8 go, especially given they were a mix of core and mainstream gamers? This 2.5-3 million copy gap is gigantic."
While I do agree with your overall reasoning, I do think Final Fantasy is trending worse than the actual (dedicated console) market shrinking in Japan.
In 1995, Dragon Quest VI sold about 3.1M-3.2M.
In 2000, Dragon Quest VII sold about 3.9M.
In 2017, Dragon Quest XI (3DS/PS4) will sell about 3.2M-3.5M.
EDIT: My Dragon Quest example is just to show that different series have different sales pattern through time influenced by other factors other thanthe market health, not that I think DQ is the norm.
Also I would add that a negative gap of 2.5-3 million from 4M to 1M is far more worrisome than a negative gap of 3.5M from 8M to 4.5M (Pokémon trajectory) because it isn't just a matter of how much a franchise has lost from the absolute peak but how a franchise stabilize through generations.