Mr. Ledyard, could I get you to elaborate on this? I feel this is at odds with my own experience here on the ground in Japan, but you are obviously seeing things from a very different perspective.
For example, I'm a sumo fan. A big sumo fan. And thus, when I talk to a typical Japanese person about sumo, my knowledge far outstrips theirs. The typical (practically scripted) reaction to this is for the self-deprecating Japanese person to say something like, "Wow, you are more Japanese than I am!" Which of course is a very silly idea. I simply possess a cache of specialized knowledge that reflects an interest of mine. The typical Japanese person still knows far more about sumo than the typical American, and more to the point, even as an avid sumo enthusiast, when it comes to sumo knowledge I get my clock routinely cleaned by Japanese sumo enthusiasts. And of course this goes both ways, as there are Japanese enthusiasts of certain American cultural aspects who know far more about baseball, jazz, etc. than the average American.
This seems to be my experience here with other aspects of traditional Japanese culture. The average non-Japanese practioner certainly falls to the right of the mean on an average distribution, but your statement "many if not most of the senior students are foreigners" seems somewhat hyperbolic. I understand this to be the situation in Toda-ha Buko-ryu, and that Katori Shinto Ryu is experiencing a heavy influx of non-Japanese, but in most other classical arts it seems to me that for every dedicated-more-than-average foreign student, there are a number of dedicated-more-than-average Japanese students.
OTOH, the budo world that I know on the English language internet is certainly different from the budo world that I know in real life. So I'm very interested in your perspective.
Of course, I only get to see a slice of the various arts, martial and otherwise, and that slice is based on my conversations with friends and acquaintances who have lived in Japan and trained or have done certain arts here. There's no question I'm painting with a very broad brush here.
One of my good friends has lived over there for 20 years now, I believe. She went over initially to do Aikido at Honbu and trained with Mitsuzuka Sensei in Iaido as well. Eventually, she drifted away from the martial arts in favor of studying various non-martial arts. Last i talked to her she studying traditional indigo dying and was heavily into the art of paper dolls. What she told me was that, whereas there were certainly Japanese women in the classes, they tended to have a different perspective on things. For them the classes were a culturally relevant hobby. The teachers came from a generation which considered these art to be Michi, paths that one pursued as a form of personal development. The younger generation didn't seem to have the same feeling and therefore were not as serious. Her paper doll teacher actually asked her to take the instructor class because she seemed to have a deeper commitment. This is not surprising as she gave up everything in her homeland to move to Japan and live. She went there specifically to study.
I know several people who are either senior or close to senior in some of the martial arts. Ellis Amdur is technically the top parctitioner of the Toda Ha Buko Ryu Naginata style. A number of the other menkyo kaidens are Americans and French. I believe they outnumber the Japanese instructors. There is a Japanese Soke because they felt that it wouldn't be appropriate to have the Soke not living in Japan. But on technical matters Ellis is senior.
Ellis is also one of only a handful, Japanese or foreign to have studied the Araki Ryu. It's obscure even in Japan and is in danger of passing away I believe as I am not sure there is a generation of instructors in the pipeline. Ellis has trained one person to take over from him here and a couple other fellows have also trained with him for many years now. It could easily come to pass that one or more lines of the Araki Ryu in Japan (I think there are three?) could simply fade away leaving an American based line as crucial the art's preservation.
Katori Shinto Ryu is another example... Otake Sensei has a son who will succeed him and by all accounts he his quite capable. But after him it's Relnick Sensei, if I'm not mistaken.
Jodo also has some very high ranking foreigners with Quentin Chambers and Phil Relnick Senseis being the senior Americans as far as I know. Relnick Sensei travels all over the world teaching Jodo, quite an unusual thing compared to the attitude shown by the folks at Aikido headquarters who would never, as far as I can see, have a foreigner acting on their behalf. if someone contacts the aikikai for an instructor, they are not getting a referral to a non-Japanese teacher.
Other than Ellis, the only other case with which I am directly familiar is Angier Sensei, Soke of the Yanagi Ryu. By historical happenstance he ended up as the legitimate Soke of the style. The family wasn't happy about it. His visit to Japan wasn't satisfactory as he was not treated well by the other Japanese martial arts teachers. Apparently they had a hard time with the idea that a foreigner could get to be a Soke.
I have another friend who is a blade maker. He is quite skilled and is known for his beautiful tantos. He's had a couple on the cover of Knife Magazine. We are talking about $6000 tantos here... Anyway, he also makes swords, I have one of his live blades. He has two Japanese teachers that he goes back to train with periodically.
The saya on for my live blade has a special lacquer that my friend made a trip to Japan just to learn the technique. That entails a level of commitment that is unusual. But if you consider that there are actually quite a few people like my friend in the states and then other countries also have their equivalents, you can start to see that it's quite possible to have more serious exponents of an art outside the country than in. I'm not saying that there won't be a Japanese Head of whatever style we are talking about but it's quite possible that the number of serious practitioners may outnumber the Japanese. Or there may be foreign students who have been taught specific techniques which all or most of the Japanese students haven't been taught...
Rev. Koichi Barrish was the first American to bee certified as a Shrine Shinto Priest. He trained under the head of the Grand Tsubaki Shrine. He was taught the same Chinkon exercises which O-Sensei did daily, probably because of his connection with Aikido. These are not generally taught to the young Priests in training these days. Rev Barrish has found himself in the position of having young Japanese Priests ask him to teach them these exercises because there are so few Japanese Priests who know them.
These are just examples; I am sure that there are more. Collectively, given the fact that there are students from all over the world who journey to train in Japan, the pure numbers can outbalance the number of serious practitioners in Japan itself. I hear from virtually every quarter that the young people in Japan are increasingly less interested in many of their traditional arts, martial and otherwise. If the Japanese can handle this well, as in the case of arts like KSR, then it will only benefit the arts. But Aikido has not yet come to terms with this I believe, at least not the Aikikai. They ar happy to have folks overseas do their art but I don't see them accepting foreign teachers at par with their Japanese peers.