Even better, it's in China.
The elevation is all over the place! The elevation stays about the same in the little snippet we get of the Island's cutscenes.i said 'including rainforest', we have 'regular' forest too :V
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The Japan is near of Australia in the same way the sun is near of earth, is basically two continents apart of each other and besides all this arguement of be near of Japan or have Japanese researchers (aka sakamotos) cause of the names is pretty shalow, fictional worlds don't need follow the rules of our world (and this what make them so fascinating btw) there infinite reasons to a writer, artist etc choose names to their characters and since we have low knowledge about this world besides the floating island assume anything is a almost absurd task in my (stupid and irrelevant) opinion.because it's near japan in real life and contains huge monsters
and if it would be in japan it would get more human visitors
an islands in japan that exists long long ago that is known only for few people is none sense
You can see better with the image from the original game just so y'know:The Japan is near of Australia in the same way the sun is near of earth, is basically two continents apart of each other and besides all this arguement of be near of Japan or have Japanese researchers (aka sakamotos) cause of the names is pretty shalow, fictional worlds don't need follow the rules of our world (and this what make them so fascinating btw) there infinite reasons to a writer, artist etc choose names to their characters and since we have low knowledge about this world besides the floating island assume anything is a almost absurd task in my (stupid and irrelevant) opinion.
What I trying to say, vague information like Japanese names, language or anything else don't prove or denies anything in a story that the world building take place in a small place and this small place don't tell us a lot about the outside world and this outside world was never properly developed besides vague information like contruies on surface.
But It don't means that don't exist a Japan or a similar country in cave story universe (or even that the events occur in our world) just that In my opinion (irrelevant and stupid) are vague and pretty bad arguments.
But I have a idea where the floating island may be But if we're going to base it on our world, I have a slightly different idea. I'll be using Cave Story 3D as the basis for my argument, and since (if I'm not mistaken) Pixel helped in the development, so I guess is not incorrect of my part use it since respect the creator's vision.
In the final scene, when the island is falling, as you know, it's a heavily forested area, and it has what appear to be the silhouette of pine trees, trees that only exist in the northern hemisphere and not in any tropical country. This already excludes a good range of possibilities, including Australia, since pine trees aren't native to it as far as I know. Perhaps Japan or some Western country, like in America. I have my reasons for believing the island would be in some Western country, but I'll summarize because I'm already stretching it a bit.

I chose Cave Story 3D because I thought it would be easier to visualize, as the silhouette of the trees looks more like "a real-life reference" than the more stylized style of Pixel and it don't make any difference.You can see better with the image from the original game
You can see better with the image from the original game just so y'know:
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Though it's not as forest-y...
Sadly there are no floating islands near where I live, but Australia is a big place.Yes it is in Australia I went there to visit Eli and I saw the floating island in the sky I swear
We have flat forests too. We also have places with snow. Australia is the size of the US if you exclude Alaska, of course there are going to me massive differences in the environment from one place to the next.The elevation is all over the place! The elevation stays about the same in the little snippet we get of the Island's cutscenes.
We have a sizable number of native pine tree species (the hoop pine for instance), we also have massive plantations of non-native pine that are grown for logging, and wild non-native pines that originated from said plantations (such as in former logging towns). For some reason the "pine" Wikipedia article only counts anything in the "pinus" genus as a pine, so the article on conifers might be more representative.This already excludes a good range of possibilities, including Australia, since pine trees aren't native to it as far as I know. Perhaps Japan or some Western country, like in America. I have my reasons for believing the island would be in some Western country, but I'll summarize because I'm already stretching it a bit.
This something I didn't knew, I'd not count plantations together since it is man-made thing but ok, I guess it makes sense.We have a sizable number of native pine tree species (the hoop pine for instance), we also have massive plantations of non-native pine that are grown for logging, and wild non-native pines that originated from said plantations (such as in former logging towns). For some reason the "pine" Wikipedia article only counts anything in the "pinus" genus as a pine, so the article on conifers might be more representative.