I don't think it's just about size (your California comparison is off; California's population is ~40 million and Japan's population is 126 million).
GTAV was definitely popular in Japan. A surprise breakout hit. It happens. But overall Japanese gamers heavily favor Japanese games. It isn't even close.
https://sites.google.com/site/gamedatalibrary/list-of-million-sellers
Scroll through here and see how long it takes you to get to a western game. Even longer if you don't count DKC (Nintendo published). Japan is, generally speaking, fairly insular with regards to how it engages with its own media vs. foreign media. Their entertainment industry is a massive juggernaut rivaled only by the United States and China, Japanese people grow up surrounded by their own movies, shows, games, etc. That isn't to say certain western media can't catch on (and many western media becomes influential for Japanese creators), many western movies and shows are popular in Japan for various reasons, but because the console gaming industry was carried largely on the back of Japanese companies in the third generation, that is their familiarity point for gaming.
As someone who's been to Japan, it's really hard to understand unless you're there, but Japanese characters are EVERYWHERE. Stores, advertisements, public service things (when I got off the train in Hiroshima there was a poster of Evangelion characters telling me where to go)... I think on some level there is a sense of pride among Japanese people regarding their characters and media. They like things that are distinctly "theirs."
That isn't to say they don't enjoy western media or they are xenophobic. There is simply a strong cultural idea in Japan of being prideful of Japanese things, I feel.
Certain western games and series catch on in Japan, definitely. DKC, Crash, Skyrim, Minecraft, GTAV, even some COD games. It's far from the norm though. Because of the history of console manufacturing in Japan and PC gaming not quite catching on over there like it did in the west, I think they are just more predisposed to their own games. The console market shrinking big time certainly doesn't help though, along with the proliferation of mobile and portable gaming (where Japanese developers have gotten very, very good at capturing markets).