I'll preface this by saying I'm someone who's passionate about RPGs, but wasn't able to play more than a handful of hours of Setsuna before growing bored.
Played ~15-20 minutes of the Lost Sphear demo, and... yeah, this demo (and game) have a lot of perplexing design choices.
1) Why am I being inserted into seemingly the middle of a scenario, on the world map, with a lengthy text tutorial on a random mechanic? I don't know anyone's name, I don't know these random guest NPCs in my group -- there's just no context for anything.
2) Why are characters disappearing and reappearing every 2 seconds for story dialogue? It completely takes you out of any immersion, and looks jarring.
3) Why are we still using the 3DS's unfortunate chibi artstyle? PS4 and Switch are both graphically capable of much more, and if we're cutting costs, 2D art ages far better, which brings me to my next point.
4) Why is there still no soul in Tokyo RPG's games? These chibi characters have no personality, no quirks, no cheeky or endearing animations. The characters in Lost Sphear don't even have portraits, so I have no idea what any of them even look like, beyond their chibi blob. If they're trying to recapture the magic of early 90s RPGs, well, they could start by investigating what made them charming and compelling to begin with.
All in all, I can see why this game bombed in Japan. Unfortunately, it feels even less engaging than Setsuna. It's depressing, because I'm loath to be too hard on any enterprising JRPG studio, as we sorely need more in the genre, especially if it harkens back to what made the classics so beloved. It just doesn't seem like Tokyo RPG Factory has it in them to recreate that majesty.
Thankfully, we know SE as a whole haven't lost their touch, with Octopath Traveler's demo being splendid and actually feeling like a classic.