The story about the Japanese smiths is reportedly about the smiths Muramasa and Masamune. If I remember correctly, Masamune was the master, and Muramasa was the student. Both produced exceptional blades, but Muramasa was a little more "erratic" than his master.
Again, if I am correct, Muramasa had a reputation for producing "bloodthirsty" blades. It was rumored that these blades actually *liked* the taste of blood, and could possibly even "go mad" and bring bad luck or death to the weilder.
In addition, historical smiths (smiths that still use the same traditions) not only produce the Japanese sword, they also bless it. At the time of its forging, it is said to be given a soul of its own, and it becomes, for all intents and purposes, a living, breathing item. That's the level of respect that the hand-forged traditional Japanese sword is given, even to this day.
There are those, however, that don't worry about that, and just like the ownership of a katana. I have one of each--a katana that I purchased from a martial arts store, which is a machine-made "copy" (look at the "chrysanthemum" sword in any MA catalog and you know what I have), and I have a custom-made iaito, made by hand by Japanese smiths. The custom blade is not sharp, but was made to be sharpened. I opted to not have it sharpened for consideration of fellow practitioners (didn't want anyone getting hurt). Maybe from superstition, maybe from real sources, who knows.....but the custom sword *does* feel like it has a personality and a "soul". At any rate, I treat it as such. It has more of a place of honor, and is displayed in my house. The other one is more set aside for practice with.
I would still say that I wouldn't mind putting together a sword myself. True, it would not be handicraft, and I wouldn't consider it to be a Japanese sword. I would consider it a Japanese *type* sword, and I would have no illusions at all about its being a "true" sword. But the thrill of making it would be interesting. If I want the real thing, I will seek out a smith; if I just want to mess around, I'll mess around.
As far as forging methods, I know very little, so I am gonna keep my trap shut on that.
Peace--