It's funny how it's people only complaining they can't make 'small' characters.
Also I've seen and heard enough about JP servers to know it's almost solely for loli characters with a few odd ones out that use it for goofy/creative character designs.
It isn't about virtue signalling, it's about people not wanting to see literal children fucking sexualized.
edit: Actually how about a compromise? They remove the min. height restriction but characters below a certain height can't wear revealing clothes and any mention of loli's is an autoban? If your arguments are in good faith, this should be zero issue.
Of course this sole thread is about people complaining they can't make small characters. I mean, read the thread title? As for the whole argument you bring about people wanting small character to MOSTLY create sexualized children, I'd really need more NA data to believe it. I mean, JP are of course in love with their lolis, so I can assume (and only assume) that you will see the JP servers with a fair amount of Japanese players running around with their small characters, sexualized or not. From my experience with other NA games, though, most people I've seen using small characters dress them up in not revealing outfits, usually going for the big dresses and pink stuff. You WILL see one or two with skimpier stuff in NA games, but at least in my own experience, games with small/loli characters in NA are not dens of pedophiles as some want to portray them.
As for the compromise, I said it before. If the extra height doesn't affect collision detection, they could make a toggle to enable or disable the limit locally, and anyone not wanting to see small characters would be able to keep the toggle on, and everyone around them will look taller on their client, sort of how visual mods work.