The bigger picture is that most Kiwis (and for that matter other foreign born players playing in national teams) is that they know way in advance that they will never represent their own country. In the case of the Kiwi guys, they also know they are may not be that likely to get a permanent Super Rugby contract either. So they go overseas to make money, enjoy it over there, stay longer, do well, and then the chance to qualify for residency comes up - why not take it? Changing it to five years wouldn't change anything in terms of player retention IMO. The same players will leave for the same reasons. It will just take them longer to qualify. Sure there are some exceptions but in the case of Japan it would be unlikely to change anything in the majority of cases.
I think it is good for world rugby. Let's face it, its not a sport like soccer in terms of how competitive it is. I hat to say it, but I highly doubt Japan would have beaten SA if it wasn't for all the foreign born players, and we would have been robbed of arguably the greatest ever result in world rugby. Over time these players will help grow the game as well.
The other thing we don't hear about is the thousands of other Kiwis playing all over the world in more random places/leagues. A few of my mates from the Manawatu region played in Spain, Guernsey, lower leagues in Japan and Korea. All would have helped to build the game in one way or another.
As for Kaino, like Nick said, changing residency requirements is irrelevant in his case (and most other really high profile guys). He took up that short term contract for the $ not for a chance to play for Japan and he always had the intention of coming home to play for the ABs again. SBW, Nonu, and Messam are other examples I can think of - just guys wanting to make some coin from short term contracts.
Anyway just my 2 cents.