In Japanese culture, you'll often see them interpreted like this:
And yes, those are his gigantic naughty bits.
Japanese lore depicts Tanuki as a shapeshifting and wily spirit with a very unique and disturbing habit of morphing its scrotum into disquises, tools, weapons, blankets, and so forth.
One image series struck me with familiarity. They are a Kage-e (Japanese shadow picture), the picture on the left seeming to be a silhouette of a Goldfish while on the right it is revealed as a tanuki crushing a man with his scrotum.
Two Pokemon references come to mind:
1.) This is most likely where the concept for the commercial break indicator "Who's that Pokemon?" originated.
2.) This was undoubtedly (in my mind) the direct inspiration for the second generation Pokemon Sentret.
Separated at Birth?
What can I say.. Inspiration is everywhere, I guess? I think it's pretty amazing that someone took a cultural item that was totally indigestible by Western culture and morphed it into something suitable for five year olds.