There used to be a good number of medium/AA devs in Japan… Then the “great consolidation” happened during the mid to late 7th generation where a lot of medium sized studios went under due to HD development expenses/issues and then stuff like the 2011 earthquake. A lot of them also got acquired by the bigger guys like Sega, Marvelous, Bamco. I think MS missed a good chance back then not acquiring the Mistwalker/feelplus package, though who knows what would have happened in the Don era with them. feelplus is one of those AA devs who were acquired, Marvelous got them.
There ARE still options in this area… Platinum (I know it’s controversial), Level5, Cyberconnect2, Arc System Works come to mind.
So yeah their choices are: otaku focused smaller companies like Falcom/Idea Factory/whatever other studios like this I mentioned (they’re not interested, no point thinking about it lol), companies that regularly do contract work for the “big” studios like Media.Vision with Sega (You get a workforce, though I’m not sure about any “visionaries” here), “unproven” startups with talent like JP Games/Bokeh/Itagaki Games (it’s in this area I would like to see an XGS published game I should add, though partnering them with another studio like back in the Mistwalker days would probably be necessary), a handful of AA studios like the ones I mentioned, or the publishers (I’m sticking with my thought that these aren’t selling to anyone anytime soon, or rather that MS isn’t seeking them either).
For now I think MS keeps up the JP multiplat hunting and waits for a good opportunity (I think Platinum is, maybe MS disagrees). To me, as well, they only need to just get a studio acquisition or two here. That’s all I expect anyway. Even just a single dedicated JRPG studio would be enough IMO.