I had forgotten the original box art. It actually still pisses me off!
This is in feudal Japan and the warlord is Japanese...but the princess and the hero are both blondes.
Jordan said it in Wired's interview:
“Honestly, I would do it with an Asian cast ... The reason the characters had white hair in the Apple II original is because it was the only color that would stand out against the black background. It didn’t really make sense to have blondes in 16th-century Japan...”
It was a design problem so I guess the cover artist did based on that computers' limitations.
That's a convenient answer, but the problem is that the facial features of the hero and princess aren't oriental either. If they had even slightly Japanese looking features with the blonde hair I could forgive it...plenty of Japanese men and women dye their hair...you still won't mistake them for caucasians when you see them. The warlord on the box art had oriental features