To begin, the Japanese auto industry has been in decline for a long time:

“Japan's failure to dominate the world's largest auto market, literally in its own backyard, is a blunder of historic proportions, and the nation's right-wing politicians deserve full blame. “

“Earlier this year when CEO Mark Fields signed off on the notice that Ford Motor Company was pulling out of Japan because its market is ‘closed’”

“Toyota with roughly a half share and seven other home teams scrabbling for the scraps. Inefficient distribution networks make the cost of sales staggering. All brands have hideously over-proliferated model lineups. And it's a game of musical chairs; sales volume has dropped almost 13 percent over the past 10 years, in step with a rapidly aging and declining population.”

The Japanese import car market declined in 2019 after three consecutive years of growth to 348,316 units, according to the Japan Automobile Importers Assn:

Even Japan’s domestic-only “kei” cars are slowly losing appeal:

So what’s the real reason for the decline of interests and Japan holding back on electric cars? A few things:

• More people than ever are losing interests in cars. Gone are the innovative days of the 90s when companies used to be rich enough to build prototypes for fun. Now people would rather drive kei cars (tiny 600cc engine cars which we used to call “death traps”). These cars are cheap, low powered, stingingly engineered to “cart” 4 people from A to B at speed of up to 90km/h if they go down a hill. Their designs would never meet international safety standards, but they’re not supposed to. They’re designed for short distance, suburban driving typically at 50km/h.
• An aging population that no longer cares about technology. Most people would much rather take the train and buses than to drive these days. Only those out in the sticks may continue driving anything as long as it’s a box on wheels.
• They gambled on the wrong technology - hydrogen. The first prototype came out early 2010s but since then the concept lacked the infrastructure and customer support to make any progress in 10 years. The energy losses and inefficiency makes hydrogen cars far more expensive to manage than EVs. But Japan is too stubborn, they can’t turn back after investing billions in hydrogen so they need to keep going to save face.

I believe that Japan’s declining economy was also too much to sustain and maintain their influence in the global auto industry. Domestic demands have changed, competition from other makers have changed but Japanese companies have not changed much at all. It is a shame as I’ve been driving and enjoying Japanese cars for years, but the minute some EV family sedan overtook my car in terms of speed and efficiency, I knew my petrol cars days would be numbered.