Japanese game development is far from where it used to be. I used to import consoles from Japan just to play those games. I'm not talking about the manga stuff. Where have all the highly innovative, quirky, and original titles gone? It's like they lost their way, lost interest or got drowned by all the largely unoriginal and predictable AAA blockbuster games that try to emulate movies over using the platform for original concepts or any form of risk taking due to the bigger budgets most likely.
I suppose we have the Indy devs for that. I do wish though, that many of these smaller Devs with big ideas were offered the budget to realise their ambition from big players like MS and Sony instead of them spending billions on a couple of blockbuster IPs.
What you are describing here is the state of Japanese game dev ten years ago. The situation has got a lot better since then - which makes it especially ironic for PS/Sony to not capitalize on it as much as they should.
I think you're both right in the end.
If we look back at the PS2 days, there were so many more (japanese) developers out there creating all sort of bizarre games. They were not simply trying to make games that all felt the same, they were really trying their best to do something that would stand out.
The result is the giant library of PS2 games. But sure, this was only possible due to Sony's domination of the market during that period.
Having to make games only for a specific set of hardware made things more straightforward for devs
With all the western propaganda that was spread in the PS360 days that "japanese games are dead", japanese devs had little choice but to:
1) Make games that had a more western appeal
2) Make games that would sell only in Japan (probably for NDS, Wii and PS3)
And this weakened japanese developers presence in the global market. It was mostly big companies (like Capcom, SEGA, Nintendo...) that managed to do well on both ends.
Your average developer would likely disappear from the market, be acquired/merged or struggle surviving.
Plus, having to make games for multiple consoles (Xbox 360 and PS3) was not a task suited for smaller companies.
What we started to see around 2016 or so, is a rise of consumer interest in japanese games again.
Not that "japanese games got better" or anything. It's just that Xbox One failed, PS4 and Switch thrived and the anti-japanese propaganda had died.
We are at a point that cross platform games became the norm, and game engines don't need to be created from scratch anymore.
Mobile games also became increasingly popular. Multiplayer games too.
With that said, consumers expectations increased too. The bar has been raised considerably, especially regarding graphics.
A lot of content is outsourced and not done internally to handle increasing costs of production.
Right now, big companies are taking much less risks than in the PS2 days.
So what we see now is that most big developers are designing games by checklist.
Games must have popular appeal, must have romanceable waifus/harem, must be open world, must have side quests, must have "story choices", must have real time action combat, and so on.
While things have improved in some ways, it probably also feels more overwhelming for smaller and medium-sized developers to make a game that will do well.