I dont think they have fallen behind technologically, design wise possibly.
The area in which they seem to be really behind is market variation.
Ever wondered why a high minority of western gamers like eastern games, but eastern gamers know scrap all about western games?
I think thats a real shame and sort of shows you that japanese developers are shy of branching out. I get the feeling that japanese people instantly dismiss a game if its not made on their home soil, which bothers me...
Well ok the west churns out FPS after FPS but theres still variation in other examples...

Is anyone else bothered by this?