An opinionated take on the matter.
I feel many Japanese are more traditional than not. This indicates, in gaming at least, that they prefer rules to stay close to what they feel the rules should be.
Thus, as the D&D that they first knew was TSR's D&D and AD&D, when rules differentiate from that very much...they will not see it as the same game. They will more likely see it as someone trying to cheat them or trying to sell them something else. Trying to sell 3.5 (and even more so 4e ane 5e) as D&D when they understand D&D as the way TSR made it is like trying to tell them a wooden chair is a Toyota Supra. They aren't going to buy your chair no matter how well it is made.
That's one heck of an assumption. They've got game series whose defining trait is that every version of the game is different from the previous one (Final Fantasy).
You also assume that the difference between, for example, original D&D and 4E is greater than the difference from, say, original D&D and Call of Cthulhu. Yet we know that Call of Cthulhu is very popular.
Sword World came out as what it was. It's stayed as it is. Even with minor changes it's stayed true to what it actually has been in the past.
For those who are more traditional, this is rather important. The D&D market is lost at this point because those who originally played it are no longer playing and wouldn't play the new stuff that is called D&D, and the younger audiences already have their game.
Alas I don't know anything about Sword World.
Another area which it fails in Japan is how well they can relate to D&D tropes. They have been introduced to the ideas of Sword World, they understand tentacles (It's japan, people), they understand alot of things that are popular...but what exactly would they think of a Tiefling...or playing Orcs (what are seen as things such as Oni and demon like creatures to them in many places??). I don't think it's going to be as appealing to their culture as other areas.
Orcs are just Oni. Oni are popular. Tieflings are also just Oni. Look at Fate Grand Order. Several horned characters who could technically be Tieflings.
Heck I'd say horned characters are MORE popular in Japan than they are in the US. Admittedly I dislike American comics (with a few exceptions) so I can't speculate on their popularity in that medium, but in Japan it is a THING. From the top of my head:
- Power from Chainsaw Man (quite popular),
- Shuten and Ibaraki from FGO
- Many different characters Touhou characters
- Mina from My Hero Academia (very popular show),
- Several characters from Sousou no Frieren
- The oni-girl from Naruto (extremely mainstream),
- multiple characters from Bleach (extremely mainstream),
- One Piece (absurdly popular) has a whole lot of them,
- Lum from Urusei Yatsura
If anything, tieflings are closer to japanese manga aesthetics than, for example, dwarves are.
It's not crafted to their experiences or culture. What is the benefit of a buy in from them? I think as D&D has deviated further and further from what they were originally introduced to as D&D, and as it's deviated further from culture they can relate to, it's fallen in popularity. 3e was closer to D&D than 5e has been, and in some ways 4e was even closer to what they may see as D&D or RPGs (I know, that may seem odd, but this is not US culture we are talking about).
As Western morals and ideals have deviated more from Japan and East Asia over the past decade (remember all the Americans complaining that they hate the term Oriental...that's not exactly a sentiment shared by those who are not Americans and are actually IN Asia...as Asia is a large place and Chinese and Japanese don't really relate to being West Russian or Persian so calling them all Asian is actually more offensive to some of the peoples of Asia) the way things are seen has also deviated. AS things are made more to placate a Western audience, in some ways it also alienates the Eastern audience (and it makes sense to cater more towards a Western audience as more sales come from the West than the East). What may appeal to Americans is not necessarily what appeals to others.
It is possible to make games with universal worldwide appeal, but that doesn't seem to be WotC's target recently from what I can tell. They are catering to the markets which currently have the greater sales, and if that means focusing more on American audiences, well, follow the money...right?
Since you started speculating wildly, I will too!
In my opinion it is much more likely that the issue with D&D is the way D&D approaches a power system. It is very common that an action show has some kind of power system that characters can tap into.
- Hunter x Hunter has Nen
- Bleach has Reiatsu and Bankai
- Fairy Tail has Magic
- Chainsaw Man has Devil Contracts and other devil related stuff
- My Hero Academia has Quirks
- Dragon Ball has Ki or whatever they call it
- Naruto has Chakra
- Full Metal Alchemist has Alchemy
- One Piece has Devil Fruits and Haki
Common to all these systems is that if they were made into an RPG then the system itself would be pretty simplistic, with some exceptions. Characters in these shows tend to be focused on doing a few things rather than having an enormous library of things they can do.
But here is the problem, imo: The most flashy characters in D&D are spellcasters. With a few exceptions like Echo Knight, D&D Wizards are more like shounen characters than Fighters are.
So your character choice is either between complicated and power or weak and simplistic. You have superpowered wizards and grounded martials.
Why isn't this an issue with Call of Cthulhu? Because in CoC everyone is at the same power level: weak. And besides it is not a heroic system.
Edit: Iosue's comment has said what I wanted to say but better. Still, I don't like deleting my comments so this stays.