It's basically a giant game between the industry and law makers, in which the gamers looking for adult content wind up being the big losers.
If you've been following things you'd notice that there have been numerous crackdowns on and mockeries made of various Japanese games, comics, cartoons, etc... being exported to the west. This ranges from accusations of child porn, to ultra-violence, to all kinds of garbage cycling about video games like "Rapelay", "Battle Raper", and other assorted games which pretty much forced a few game producers to stop even trying to release their products in the US, and actually try and seal their sites and such off from western browsers. We won't even get into all the garbage that gets slung over things as relatively innocent as the "Dead Or Alive" franchise.
At the end of the day this costs the guys producing Japanese media money, they have products with a demand they can't release without a bunch of bad press and censorship sharks swarming all over them. The titans of the western gaming industry generally tend not to do much to try and balance out the politicians, especially when foreign products and imports are involved. Indeed extra special attention being taken when it comes to imports helps reduce the competition for those "M" rated games. In some cases the demanded edits of Japanese games have been so extreme that they were cancelled entirely, something which is odd when you consider what was being cut from those games didn't go any further than what you were seeing in releases like "Grand Theft Auto" even post-Hot Coffee.
To be blunt 90% of the appeal of Grand Theft Auto is all the wild, irreverent, and immature (if very, very adult) stuff going on, that's kind of the point, just like it is for Japanese material with a lot of shock value in it. What your seeing is Japan pretty much showing that if their exports are going to be censored to the point of not being able to make any money in this arena, they can do the same thing to the incoming imports in the same genere and cost American companies money... or so they would like to think. The idea ultimately probably being to get the gaming industry to actually go to bat to defend "Adult" games, including imports, in exchange for Japan loosening up as well. Japan can play hardball to an extent because it represents a pretty big market for western pop culture like video games.
As far as Japan's policies on what can be shown and what can't be shown, it can get complicated, and a lot of it comes down to where something is intended to be shown and to what audience, much like the USA. How much detail can be shown on sex organs actually comes up depending on your rating apparently, which is why you see things that involve surreal seeming workarounds, to ultra-detailed sex acts drawn down to the bloody pores on the sex organs. At the end of the day "Grand Theft Auto" should logically have nothing to fear given it's intended audience, unless of course Japan is setting out to be difficult, which as I'm explaining, is what I figure the case is.
