Shenmue.

Yakuza.

Dead Rising also, I guess.

GTA is popular there too.

Shenmue was more Adventure than Sandbox.

I don't think we are ever going to see another country dominate the industry the way Japanese companies did in the 90s. Gaming has become a much more international business now. China and South Korea may become more prominent over the next 10 yearsbut I expect we'll also see more interesting and polished games coming out of Eastern Europe and the rise of South American development. South America could be terrifying if Rock of Ages is any indicator.

If any country's dominant right now it'd be Canada.

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That's the point. It hasn't declined. There are just more western players truly "in the game" now. Between Sony and it's absorption of several developers in the PS1 era, and Microsoft absorbing several more from the PC development scene with the launch of the Xbox, western developers are simply more visible, meaning the dominance of Japanese developers simply seems less prevalent.

Yeah, that. It's not so much that Japan has declined as a creative force as the west having improved. There's much more to it than that - changing tastes, Japan moving to mobile and handhelds to the point where technologically its developers were around a generation behind - but it's 2am and I'm not about to bang on at length about that now.

Japan still makes great games, they're just not event releases any more outside a few major franchises. But the likes of Vanquish, Dark Souls and Xenoblade Chronicles to name but three prove that they can make games every bit as good as western titles if not better. That Japan doesn't make sandbox shoot/drive-em-ups and FPSes doesn't mean that Japanese game design has declined; it just focuses on other game styles.

Also, Inafune wants to get his own house in order before he starts criticising his peers. He's not exactly talking from a position of strength based on his most recent releases.

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Anyway to answer the question. Some areas have declined, but no more than in any other region. On the flip side, other areas have peaked to pinnacles of complete and utter awesome. Like Dark Souls.

I just looked back over my games collection and Dark Souls was actually my only retail game bought last year that was from a Japanese Developer. That could be indicative of the times but it was also greater than 95% of the Western stuff that I bought.

Isn't Dark Souls basically just a roguelike?

So play a caster (anything but Destruction).

Patch 1.5 will be improving the melee combat btw.

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I floop the pig.

I may well enjoy Skyrim if I put the effort in but my current experience with Skyrim was a half-hour blast at a friend's house to see what all the fuss was about and I wasn't too impressed but hey ho.

Going back to my original post the main reason I was comparing Skyrim to Xenoblade was in the design.
Despite the cookie-cutter characters the actual game world of Xenoblade and it's structure are pretty original. Skyrim falls foul of the same old cliche'd western fantasy RPG D&D/Warhammer tropes regardless of how it plays.

Many may disagree but all my favourite games *still* come out of Japan. I don't think it's industry has declined, but rather western tastes have changed. Japanese RPG's, Beat 'em ups, Shoot 'em ups, Puzzle games and Adventure titles are as good as they have always been; it's just that nobody wants to play these games anymore.

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It's always been an issue with the Elder Scrolls, to my mind. I recall reading someplace that the game grew out of of the developers original D&D games, and it shows because Tamriel is about as "my first D&D setting" as a game can get.

Very impressive from a technical and artistic standpoint, though.