Izanagi belongs in the same class of jutsu as the other Uchiha genjutsu. How many times have we seen a massive battle with big moves, where it was all useless, because the "other guy" was in a genjutsu from the start? At least four times from Itachi and Sasuke.

Turning physical attacks into dreams "retroactively" is "the same thing as" catching someone in a genjutsu and letting the other guy think he's attacking -- at least from the reader's perspective.