This is very interesting, very interesting indeed. While I happen to be a rather big fan of the Emerald Empire (thats Legend of the Five Rings), I do see where you are coming from here. L5R is heavily Japanese based, but also draws upon several other cultures to make up its world. Having a strictly Japanese based setting would be very cool, and I eagerly await to hear more!

Oh, and I like that you want to have elves and dwarves along with the fact that you recognize that M&M were weaponsmiths not the weapons themselves!