"Realism" constitutes more than just the accuracy depiction of the place, but the setting as its entirety.
Don't think Obsidian ever says they want to make a realistic RPG though. Not with all of the magical powers MT is capable of wielding for one. I remembered Obsidian only saying that thy wanted to make an RPG based on a realistic setting. In addition, it is true that AP once tried to achieve a Syrian setting, but changed gradually to evolve what it seemed to be a Metal Gear/Kill Bill inspired setting and characters.
As for the accuracy of the locales, even movies make shootings in an entire different city or even country in comparison to the script in order to save costs. I try to provide Obsidian's perspective though why they choose over fictional accuracy in comparison to actual one.
-Create a recognisable, impactful stage upon the starting of level in comparisons with other levels. Furthermore as you said that if the place is truly the same looking as Japan, it would be difficult for the players to differentiate between the two cities if Japan's level is included either in the game or in its sequel. Regardless, the level shown in the video may simply be located within someone's manor, so its too soon to judge about it yet.
-Creater freedom in creating the level to accomodate the player's tactical needs.
My 2 cents.