Here's the passage where he speaks about it:
Q: Shenmue and Shenmue II were action adventures that retained the atmosphere of your masterpiece, Virtua Fighter. What kind of genre will Shenmue III be?
YS: This time it won't be Virtua. Shenmue used the Virtua Fighter fighting engine, and Shenmue II the Virtua Fighter II engine for battles. However this time, we aren't using the Virtua engine, but building an original one from scratch. It's hand-made.
Q: What will one of the main characteristics of the series, the fighting element, be like?
YS: I don't think it will be an action game that demands the input of critical commands. At its foundation Shenmue is a thinking-style game, and what's important is not skill at timing commands correctly, but decision making. For some time I have thought that the Virtua engine doesn't really suit it, so we're now in the middle of making a new battle engine.
Q: That will be something to watch for! Approximately when will the new battle engine be complete?
YS: It's hard to say. That depends on how much we enhance it.
Q: It's not something that could be called a new Virtua engine, is it.
YS: No. It will be something of a completely different type. With Shenmue, fighting is no more than one of its elements. It's a tale of adventure that's based around martial arts, so the fighting aspect is bound to appear in it, but it's a matter of how dramatically, and how cinematically it can entertain the player. I want to make it so that even people who aren't good at fighting games can press buttons - without worrying too much about which, to a certain extent - for the story to advance. Ugh. The average casual gamer is not gonna be playing Shenmue 3. We can handle a complex fighting engine.