And some of those portable games were better than any console games coming out at the time. So they certainly didn't go away.
And even on consoles, last gen saw Japan releasing games like Yakuza 3-5, Xenoblade, Super Mario Galaxy 1 and 2, Nier, Tales of Graces f, Trails of Cold Steel I and II, The Last Remnant, and dozens of other great games. They were just largely ignored outside of some of the big Nintendo games like Mario and Zelda. To say nothing of the fact that Persona 4 was a late 2008 release, even if it was on PS2.
Japan was still making great games. They just weren't getting the attention for it.
This.
Also a lot have been made on handhelds that people avoided.