Modern games are all about 3D graphics happening in special purpose hardware.

Even back in 2002, Jacob Marner found in his report "Evaluating Java for Game Development" that Java was quite usable for games, except for the most performance dependent parts, and due to the robustness of the language and the underlying JVM that it was cheaper to do it this way.

http://java.coe.psu.ac.th/FreeOnline/Evaluating%20Java%20for%20Game%20Development.pdf

It is my personal opinion that with the progress that has happened since, especially in 3D-graphics, and with the excellent bindings to OpenGL et al, that this disadvantage is much less pronounced these days.

Hence the problem must be elsewhere. A likely reason is the size of the Java runtime (which is much less an issue these days with multi-DVD games), and another the inertia of existing code. It is notoriously brittle to start working with native code in Java. A third reason is what the star developers doing the games are familiar with. A fourth is whether Java is at all available on the platform.

One thing is certain though - most games are moving into being scriptable instead of having it all burned in C code from the start, and you want the best runtime underneath your scripting language. These days this essentially means either the CLR or the JVM.