Hello!Some combination of all of those, I expect. But probably not creating a font. There is an ample selection of fonts nowadays.
Retroarch already includes an auto-translate feature.
I can only speak for myself, but font is actually one of the first things I get into when I start a project.
I never created a font from scratch, granted, but I had to tweak, or even replace, the original font of the game more than once.
Sometimes they're close to unreadable, due to western characters not being used (Earth Seeker and Ikenie no Yoru), some other times, I replace special characters with "double L" and such, so I can save space... and all the games I've translated that had brfnt/brfna fonts were actually modified, with an extra space after each punctuation mark, once again to save space!
As for auto-translating feature, I'll admit I've never tried these, and I suppose some games would be easier than others to translate: correct me if I'm wrong, but it would be like having subtitles on movies? I don't see how the original text could be replaced without issues with some of the games I did, which didn't have an automatic linebreak for example.
Anyway, the old fashion way certainly is better, but requires a lot of time, something that should be taken into consideration, as enthusiasm alone will eventually fade a bit off.
But it's so nice to finish your job, and feel like the game didn't have that much Japanese script to begin with, which of course is never true!