Well, it was certainly a tough call. The fans and the team had a lot of affection for the setting and characters of the first Red Steel, and it was certainly tempting to pick up where the first game left off. However, as we developed our gameplay and art style for Red Steel 2, it became clear that what we were doing would work much better in a new setting: a setting that was built around this new type of combat we had built, and a setting that better fit what we wanted to do with the game visually. So, we took a good hard look at what was really cool about the first Red Steel (guided by a mix of our own gaming tastes and our quite passionate feedback from the fanbase). From this, it became clear that the strong Asian-style setting and the mix of modern action gun combat plus katana-based sword fighting is something that resonates with a lot of people, us included, but that there was room to take the franchise in a new direction while still keeping that “Red Steel” core. So, we started there. Then, we began to build what would become an entirely new world, story, characters, and visual style around those core concepts. What you see is the result. - Jason Vandenberghe, Creative Director

This is just one of a barrage of questions that Mr. Vandenberghe has answered concerning Red Steel 2. I highly recommend that you read the entire forum interview at the link below, as it seems that Ubisoft is going out of their way to get some back-and-forth going between the dev team and consumers.