But then Western devs mass-transitioned towards story and simulation and hybrids like action RPGs or action strategies, as if simple action was suddenly not good enough, while the Japs stuck with the formula and kept refining it.
This is not entirely accurate. Western gaming culture STARTED with gaming being seen as a means to explore computing possibilities, mostly because in the west gaming was very closely correlated with IT culture. Look at Spacewar!, by Steve Russell, a game that was very much about showing what could be accomplished with computing technology, an idea that stuck with western developers for a long, long time. By the 70s, most of the genres we associate with western computer games, RPGs, strategy, adventures, simlators, they were all already being created, mostly by IT students who created then played those games through their university mainframes:
https://en.wikipedia.org/wiki/PLATO_(computer_system)
Hell, they were even running multiplayer games since those mainframes already had internet (ARPANET as it was called then) capability back then.
The first DnD video game came out the same years as DnD itself:
They even had multiplayer first person shooters:
This is not to say that western developers are incapable of creating good action games in principle (or conversely, that the Japanese cannot create anything other than arcade games), but the general mindset of western devs was for a long time centered on the idea gaming was about experimentation, of discovering what could be done with computing technology.
Japan by contrast have had their conception of what a video game is completely reshaped by the release and subsequent success of the Atari in their country, to the point for them a video game is essentially synonimous with arcade. While the IT culture of the 70s continued to have an influence on western developers for several decades, Japanese developers focused all their energies to the arcade genre because Japanese companies demanded it. When Space Invaders broke through every capable developer or programmer in Japan was hired exclusively to try to make similarly commercially successful arcade games.
So there's no surprise the Japanese have such a talent for making action games. They literally had decades and decades of practice doing nothing but that. This is why i believe that the advent of multiplatform development was a death knell for western gaming because it killed the IT gaming culture that had dominated western gaming even as late as the 90s or early 2000s. Most of the genres western devs were accastumed to don't function well on consoles and there's not much room for innovation or experimentation when you are locked into a specific system and way of doing things as consoles tend to be. All the genres western developers had mastered don't play well on consoles. All that works on consoles is pure action games, the kind the Japanese have had a complete monopoly over for decades.
Keep in mind that by "console" i don't mean just the machine itself but also the whole corporate culture around them. We had consoles in the 80s and 90s as well but most of them were still playing by the rules of the IT gaming culture that eventually coalesced into the PC platform and became synonimous with it.