See where I disagree is that the cap on consoles is what the PS4 and PS3 did. You know why I think in part consoles do pathetic in Japan currently? Because Japanese publishers are never prepared for transitions to new hardware.
When the PS4 and Xbox 1 came out EA, Activision, Warner, Ubi and Take Two were prepared to support the systems with their biggest franchises immediately. Assassins Creed, CoD, Battlefield etc were ready at launch as cross gen titles. New entries in major franchises launched on the system with 2 years of release and there were a good chunk of releases to get the userbase titles to play while big hitters were prepared.
With the PS4 and the PS3 in Japan that wasn't the case. The systems are wastelands because publishers arent ever ready to support new hardware. And that makes the systems unappealing until like 3 to 4 years into the life cycle. Japan is always behind the ball here when it comes to console development. The DS, PSP and 3DS let games be plopped out much faster so while they had droughts they still got relevant games at a significantly faster rate.
I don't think Japan means death for consoles inherently. I think it is going to be impossible to launch a successful console if KH3, FF15, DQ11, RE7, Persona etc take 3+ years from launch to come out. What are people suppose to buy the system for untip then?