I don't think Japan is ahead of Europe and North America in terms of processing power on mobile phones, just when it comes to network speed. Mobile games are not huge enough for that to make a significant difference.
Typically, japanese phones have been able to be smaller than ours because they did not need dual network functionality. Because of the low population density in many areas of Europe and North America, it is not viable to have 100% coverage of whatever is the newest network tehcnology at the moment. This leads to mobile phones requiring antennas and stuff for both 3G networks and 2G networks at the same time in order to be usable outside of population centers. In Japan however, the population density is extremely high, so it is much easier and cheaper to build enough network infrastructure to cover 95+% of the population, which leads to new technologies becoming common at a faster rate. However, because mobile phone size today is mostly determined by the size of the touch display, extra network equipment inside the phone taking up extra space is no longer much of an issue.
Because transfer rates have been higher for a longer time in Japan, phones with lots of processing power have been useful for a longer time, but we're not at the point where networks, at least here in Europe, are more than fast enough to justify the same amount of processing power that Japanese phones have. Take for example the newest HTC phone nowadays. It has a quad core 1.5 GHz ARM processor and 1 GB RAM, and is available in Europe and North America. I doubt there are japanese phones with significantly better specs than this, and this phone is just the last model of a series of powerful phones we have seen the last 3-4 years.
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