The creative output isn't great either. Agencies like Dentsu are the size they are because of relationships, and that there will be someone there to answer the phone any time of the day or night, rather than out of any creative brilliance.
Dentsu are an example of a big Japanese company that has recently started to work with Western companies to in effect, outsource the innovation and creative ideas bit.
Your analysis is correct - once Japan lost its supply chain supremacy they were never likely to be able to win back the advantage by producing higher quality goods and services.