I believe their policy is (or was anyway) to build each game entirely from scratch. That's probably another reason why Japanese development has lagged, that philosophy doesn't work anymore except on handhelds, and even then!
I'm sorry, but I don't buy this for a second. This may have been the policy in this specific case, but it's kind of crazy to claim that this is a general feature of Japanese game development when I can think of dozens of counterexamples off the top of my head. To name just a few:
Tons of examples in the Final Fantasy series, going all the way to FFII being built off of the original's tech. FFV was clearly based on FFIV tech and FFVII, FFVIII, FFIX, and even Crono Cross were all built on the same basic engine. Sure it was tweaked over time, but what developer--eastern or western--doesn't do that? Tweaking is totally different from building from scratch. Also, they have clearly indicated that they intend to reuse FFXIII's engine in other projects.
Niche developers all do this. Gust shared tech in the Atelier Iris games and the first Ar Tonelico. NIS kind of takes this to the extreme, with Disgaea 3 clearly being based of the same engine as 1 and 2 despite the change of platform. And they're still
getting mileage out of that engine with Zettai Hero Kaizou Keikaku...
There is also MeshGear's example of Atlus...I'll get back to that. I'm pretty sure the Xenosaga games shared tech. I'm sure there are plenty more...think of just about any RPG series and you will find examples.
Now, a legitimate criticism you actually can make about Japanese game development is that traditionally while they clearly would reuse tech it was all in-house. Tech was reused between games made by the same developer, but nobody would make an engine and then license it out the way, say, Epic does with the Unreal engine. Licensed engines are really a boon for smaller developers, especially as tech advances and the engines become more and more complicated.
That's probably also why Atlus is sort of... doing pretty well now. Persona 4's development cycle was *really* short. FFXIII's was long as hell.
Mesh talked about two different things here and I'm not going to address the gameplay part. But I think the example of comparing Persona 4's development time to FFXIII is really unfair, namely because FFXIII was the first implementation of some new tech on an entirely new platform, while Persona 4 was just a new iteration on an old platform. How many developers move to new platforms while keeping their old engine around? (Yeah, I gave the Disgaea 3 example above...but that's the only one I can think of.) Note that Atlus still
hasn't made a game on a current-gen console. There are rumours that they are working on it but it remains to be seen how long it will take. And when they finally do release something it's doubtful that they will be pushing the technology envelope as hard as S-E was with FFXIII. Of course that says nothing about the gameplay.