from what i understand, they usually don't want to do historical or realistic pieces (instead going for animu or fantasy) because (at least according to some chinese people) they want more fantasy based settings. too tired of realism and the daily grind that comes with it, they want their escapism to be an actual escape from their hard lives into the realms of wonder, not another attempt to ground and limit them. as a result, realistic games don't sell that well in asia.
doesn't help that western like realism is expensive and time consuming to do, and their gaming studios don't get hollywood tier money thrown at them unlike usa or europe. games are still seen as toys for kids, and those don't receive a lot of finances, with most money and work going into mobile market these days.
just because people want escapism doesnt mean all of them wanna play as moeblobs and unrealistic characters. or expect all important games to go the anime/cartoon/unrealistic route with character/world design.
there are photorealistic games centered on asian characters, like Siren 1 and 2, and the upcoming remaster of 428 Shibuya Scramble (a photorealistic visual novel style game. whereas there are hundreds of animeish visual novel games, 428 Shibuya Scramble is an example how photorealistic characters and world can be more appealing and immersive than cartoonish characters).
photorealism is an underutilized art, and it really does not require high production values to achieve, as proven by Siren 1 and Siren 2, which with PS2 tech, they are able to produce characters more realistic and genuine than a lot of AAA games that are made on PS4 and Xbox One.
its really based on art direction and how they put together the overall visuals.
take for example 2D games, like some are 2D rpgs, thats even easier to apply photorealistic characters and worlds, since photos are easier to produce than creating characters from scratch with pixels or line art.
overall there is much potential there. its just a shame how there are a lot of western games that aim for more realistic and authentic caucasian, hispanic and black characters, while asians in general just go anime with their character designs.
it really is degrading. now it seems nice that some series like Yakuza someone try to make their characters japanese instead of caucasian looking characters with japanese names to them, but they are still generally not realistic enough, and that's just one genre, not everyone is into Yakuza type games, plus Yakuza itself is bad influence with the shady stuff and crimes they do.
realistic looking characters and realistic looking world would actually provide a form of escapism that cartoonish games can't provide. the game would be realistic and at the sametime provide freedoms with no real consequences, so that in itself is escapism a lot can appreciate if the overall game turns out good and appealing.
but yea it doesnt have to be anime or uncanny to be appealing.
there's so much beauty of Japanese people and Japanese locations that its shame their industry leaders shy away from all that for the most part.
whereas westerners overall embrace realism and aim for more realistic looking people and world, though sadly, they exclusive asians in almost all their games, and those that go includes asian, dont look realistic asian.
and them shying away from realism is giving room for racism and xenophobic attitudes to spread out, which is bad. they shouldnt think westerners wouldnt buy games with realistic Japanese characters in them, japanese developers should embrace their ethnic qualities and appearances, especially the best appearances that make their race even more special and beautiful and deserving of representation in games.
so I feel there is a crisis in those aspects with Japanese devs being too invested in anime/unrealistic characters and lacking the pride and self respect towards their own kind in games in general. looking at the industry history, there is an unhealthy insane amount of glorification towards western ethnicities and not enough pure realistic asian representation in games.
where is their pride? where is their self respect for their people, country, race and especially racial ethnic traits/genetics?
those things are not fully reflected upon in their games and character designs.