ORIGINAL: Terminus
The IJN subscribed to a flawed submarine doctrine, but at least they built the boats to implement it...
If we look at it rationally, the only reason for those ranges would be warfare off the West Coast of the US (possibly even the East Coast). It's mainly based on the Japanese offensive mindset. If we switch that to a more realistic strategy, and remember that the IJN intended to base their subs at advanced island bases anyway, then the long ranges become irrelevant, and mass produced medium boats make more sense.
As for the midgets, they're not effective enough to merit much attention, either in real life or the AE. The guys on the AE naval team did a good job at making them realistic; I was team lead for the implementation and initial testing, and I know they don't do much.
The Japanese midgets represent the best of the species in that generation - and that is considerable because the Italians really had done a lot of significance. Much of this is not well understood outside special operations forces - and at least one success was not credited to the Japanese midgets until about the turn of the century (when the curator of the US Aviation Museum in Hawaii - Burl Burlingame - published photographic evidence - since studied several times by USN forinsic analysts - reported in the Proceedings). Up to four other successes are still not credited except in some submarine books - because we assumed (wrongly) these attacks were by medium submarines (which were not there to make them). There are severe problems with this sort of weapon - most related to the requirement for an expert crew - the rest relating to how they are employed. For a good technical discussion of all such craft in all eras, see the new book Midget Submarines.
Midgets were possible in WITP as issues - and I have them working in RHS - but they would not work in ports (which was not their original designed purpose, but a second mission for which a number were modified just before PTO erupted into war - and which they were able to do successfully in at least three widely different places - more significantly every place they were used in that way). Later use was in the Philippines for challenging pasage of narrow straits - and that would / does work in WITP. The main problem with their "doing much" is they only have an 18 inch torpedo warhead - and for technical reasons you never get more than one hit on the same target. But they cannot do whatever they hit any good - and they should be effective if the launching submarine crew experience level is high.
Note that many nations - large and small - use midgets today - including us.
As for a "flawed submarine doctrine" - well - yes - there were flaws. Formost among these was a failure to use the submarine force as it was intended to be used. This mainly occurred because - with a single exception (6th Submarine Fleet) - no staff had a senior - or even medium - grade submarine officer: the expertise to know how to use them was not even on the staffs commanding them. Another problem was lack of consistent application of any policy: Polmar counts five different policy periods - and the Indian Ocean area sort of had a separate policy for most of them. But the indications are that in many respects these units were mission appropriate - and there were times they scored significant successes. One of the changes MUST have happened during the war - in that the concept did not occur until after the war began - this being "strike from the sea" (meaning air strike) - and a book (of that title) thinks this continues today in the form of missile submarines. The USN did design its own I-400 class - for jet bombers (see US Submarines Since 1945) - and it is anything but clear that, had Yamamoto lived, this project would not have been pushed all the way to operational use during the war.