I always wondered why the difficulty of the ps2 was not an impediment to Japanese developers/
For a lot of the bigger companies, coding on the PS3 wasn't actually a problem either.
What killed most Japanese publishers with the HD transition is that their production processes couldn't handle the workload associated with making HD art assets and games of 360/PS3 scope.
Like let's take Square Enix as an example. Square Enix used Waterfall development which would mean their games weren't playable until just a few months before launch, and to let them quickly rearrange things in the past, they would simply make every art asset at 100% quality. An example would be say there's an airship that flies past you in 2 seconds, so you never get a good look at it. Instead of just making it at an acceptable level of detail, they would make it as if it were a visual centerpiece you might stand in front of for 2+ minutes, taking vastly more time to create, on the fear that they might decide 2 months before launch that they actually wanted to use it as a visual centerpiece instead.
Now, if your graphics are PS2 level, this isn't an issue. If your graphics as PS3 level, and you're suddenly doing this for 5000+ models, this is a huge issue.
It's also very hard to test out new ideas and find out potential problems with your technology if you don't actually try anything until the end of development. If your game seems fine on your initial test setup and suddenly you notice at the end of development that everything runs at 15 fps, you have to quickly butcher things in order to get ready to ship or delay for a decidedly long time.
Then they also had issues like someone would have a job title of "shoe modeler" instead of "3D modeler", so if they finished all the shoes that needed to be made for the game in six months, instead of just going on to work on something else, the corporate structure was such that they would twiddle their thumbs until someone finally reassigned their title, as otherwise there would be huge office politics issues about why they're taking over someone else's workload without being told to.
But yeah, basically the issues with Japan was not that Japanese developers couldn't handle game programming, it was that they didn't have the development model necessary to make the games the technology enabled. The move to the DS and PSP allowed a lot of developers to actually not bother changing their processes as well because their old methods still worked fine on hardware that was worse than the PS2. I imagine there's actually quite a few that still work this way since the 3DS and lower tier Vita games would still not have problems with horribly outdated models, nor would most mobile games.
Square Enix, to their credit, eventually learned how to handle production in a more sane fashion and now runs a lot of workshops for the community to try and share how they worked on their problems in order to get a more sane development model. It's helpful since it doesn't seem like advice being broadcast from abroad, but rather someone who used to be the star third-party developer in the region.