I've been busy with my life and all of a sudden a term I had been using for years has become known to be racist.
Context: Naoki Yoshida, producer at Square-Enix, has recently stated that he wasn't happy with players calling his games JRPGs. For details, just type Naoki Yoshida JRPG into the internet search machine of your choice (or follow this ddg link).
When I was young I always used to refer to roleplaying games developed by japanese studios as just that, RPGs. There simply was no other term for the genre that was known to me, and for a long time I had not even touched any RPG that had not been developed in japan. Although I eventually came to try out a number of western-developed roleplaying games, I've got to admit that I've never actually completed one. So I've always preferred japanese RPGs and thus never attributed the genre label JRPG with any sort of derogatory meaning.
But how are japanese roleplaying games different from western one's anyways? It's actually quite a bit more complicated than that. Japanese roleplaying games aside, RPGs used to be divided into a bunch of sub categories such as Character RPGs, Dungeon Crawlers and Simulation RPGs (also known as Tactical RPGs). Now my understanding was always that games such as Baldur's Gate and Icewind Dale would fall into the CRPG category - the one that would come to be most commonly contrasted to JRPGs. Now, how do these differ from the stereotypical JRPG (e.g. Final Fantasy VII, Tales of Symphonia, ...)?
My impression was always that western CRPGs had a heavy emphasis on complex mechanics and world building. The most popular RPGs from japan (JRPGs) on the other hand were fitted with comparatively simple mechanics, but had a much stronger emphasis on telling more or less epic stories centered around characters. Therefore traditional CRPGs used to provide frameworks for players to run their imaginations in, and their japanese counterparts used to be more like heroic soap operas. But in reality tactical RPGs as well as dungeon crawlers were always developed both in the west and japan. Not to mention that japan also produced games much closer in genre to CRPGs.
It's true that there are elitest CRPG fans in the world that never liked "JRPGs" and always claimed their favorite genre to be superior. But in reality it's all a matter of subjective taste. And given that context I can see japanese developers taking offense with the term. But then, even Naoki Yoshida, source of the controversy, apparently stated that the term isn't commonly used in a negative sense today.
On the other hand there are claims that JRPG is a racist term because it singles out japanese RPGs. There's some truth in that, but I think this also entirely depends on context. It can be used with a racist connotation, but it doesn't have to be. Consider that many players have also adopted the term WRPG to define popular western-developed RPGs such as the Elder Scrolls and Mass Effect series. It's also an issue of sensibility. Consider that players that were introduced to western RPGs first would automatically adopt a habit of referring to RPGs and JRPGs, not harboring any ill will towards the japanese - it would be a mere convention to them.
Conclusion: Is it a racist term? Maybe, maybe not. It depends on entirely on how the person using it feels about the japanese.
Personally as someone having grown up calling japanese roleplaying games just RPGs - who later came to use the term JRPG himself - I've quite often thought that the label had an awkward aspect to it. Indeed not every RPG developed in japan really falls into that category, and when you think about it popular western RPGs have also become more like traditional JRPGs too in terms of storytelling and mechanical complexity. But then, even with homogenized mechanics and storytelling, there's a cultural influence on either end that I think is important to consider (and it really isn't that simple today because japan no longer is the only asian country producing videogames at large).
The big picture for me is that indirect communication is the real culprit here. Yoshida-san and other japanese developers should have talked directly to the persons who they felt were using the term in an offensive manner. If there was a misunderstanding it could have been cleared up right then and there.