Sequels aren't a problem if they're continuously improving on their predecessors. Setting aside Atlus which you already mentioned, and stale N+1 sequels, we've

Sequels aren't a problem if they're continuously improving on their predecessors. Setting aside Atlus which you already mentioned, and stale N+1 sequels, we've got: Square Enix with Octopath Traveler and Dragon Quest Builders recently (which improved with their respective sequels), From Software with Sekiro and Elden Ring, and Nintendo with Breath of the Wild (and its improved sequel). However, I think in the main you're right (the industry is slowly dying), I just don't think it's as manifest (or irreversible) yet. I do think if Nintendo and Game Freak prevail against Palworld, things will get bleaker for Japanese development, though.