From what I have read at "The Inuyasha Companion" There will be no more Inuyasha Movies or episodes produced.
The Inuyasha Companion
Is the anime going to continue?
No, there have been no official plans to continue that anime after the manga ends. There has been no substantial news since March 2005 when a meeting was held in Hakone, Japan between Takahashi and the producers of the show. No information was shared about the results of the meeting, but obviously nothing came of it. Once the manga ends, things may develop, but as of right now it does not look like it.
Update: It was announced on July 9, 2008 that a 30 minute special Inuyasha anime entitled "Kuroi Tetsusaiga" (Black Tetsusaiga) will debut at Rumiko Takahashi's "It's a Rumic World!" art exhibition on July 30th. It is unclear if this will lead to more animated specials or if it is a one-off event.
Why did the anime end?
There were 167 episodes before the series ended. When rumors began to come out that the show would soon be ending there were reports that the staff wanted to move on to another show, Yakitate! Japan. Whether or not ratings were a factor has never been revealed.
New Inuyasha Short to Debut at Tokyo's Takahashi Event - Anime News Network
A new 30-minute Inuyasha anime short, "Black Tessaiga" ("Kuroi Tessaiga"), will premiere during the Rumiko Takahashi Exhibit of original drawings from the famed manga creator (Inuyasha, Ranma 1/2, Maison Ikkoku, Urusei Yatsura) on July 30. Takahashi ended her Inuyasha time-traveling fantasy manga in Shogakukan's Weekly Shonen Sunday magazine last month, and the television anime adaptation ended in September of 2004. Yomiuri TV's anime producer Michihiko Suwa (Inuyasha, Detective Conan, Kekkaishi, Black Jack, City Hunter, Angel Heart) made the announcement in his "Swatch's Anime Diary" ("Suwacchi no Anime Nikki") blog on July 9.
The new anime short is named after Tessaiga ("iron-crushing fang"), the signature sword of the half-human, half-dog-demon main character Inuyasha. The cast members assembled for the first time since the last film, December 2004's Inuyasha the Movie 4: Fire on the Mystic Island, to record their new dialogue on July 8. After the recording session, 16 members of the cast and staff went out to eat and re-connect with each other.
The "It's a Rumic World" exhibit will run from July 30 to August 11 at the Matsuya Ginza department store branch in Tokyo's upper-class Ginza shopping district. Viz Media distributes the manga and anime versions of Inuyasha in North America.
Source: Saishin Anime Jōhō
With the television series ending without a definitive conclusion, many fans hoped that the film franchise would continue to follow Takahashi's manga to its conclusion and they may not have been too far off the mark. Every year since 2001 the cast and crew of the series has travelled together to Miyako Island in the southern region of Japan on what has affectionately become known as the Tetsusaiga Tour. The February 2005 trip was especially notable as Rumiko Takahashi went on the trip with producer Michihiko Suwa and 33 members of the Inuyasha production team.
The group celebrated the conclusion of the television series and the triumph of the fourth Inuyasha film. The subject of continuing the anime after the conclusion of the manga was discussed, however at the time Takahashi was nearing the 400th chapter of the manga, and upon the release of that chapter, stated in Weekly Shonen Sunday that she planned to go for at least another 100 chapters. Even now, with the anime series long over in Japan, the Tetsusaiga Tour continues, and with it, hopes that Inuyasha will continue in animated form sometime in the future.
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