What balanced journalism! Hey, Escapist! If you have no one on staff that can speak Japanese, I'd be glad to work freelance for you.
The video included goes into more detail about the situation. Here it is: The city is saying that the design artwork of the character was intended to represent a thing of nature, hence the leaves for ears. They then contracted out the work to create a costume from the character design on paper, and the contracted designer came up with what you are seeing.
Considering the design drawing looks a lot less like Pikachu than the costume does, and that the city contracted out the costume design, it actually is really plausible that it was an honest mistake.
That said, as Doom972 noted, it's not like this is a fluke. Characters with gigantic eyes, animal features such as tails and big ears, and bubbly body types are pretty much par for the course in Japan. It's a style that combines the characteristics of early anime and manga (itself inspired by American comic books) and traditional Japanese mythology which heavily features mystical animals, especially foxes, tanuki, cats, and other furry creatures.