I think it's safe to assume they exist but are deemphasised, as they wouldn't serve the story, and they've pulled it off pretty well. The games are never so violent that they make you wonder why someone doesn't just pull out a gun and shoot Ryo in the face, for the most part. The Yellow Heads felt like the most scummy and lawless of all the gangs so far, so the gun in the magic rooms makes sense in that regard.
But the lack of guns in general is one of those things you have to accept as not 100% realistic, which is made easy by the fact that they aren't overly gritty or dark games. You could argue it's unrealistic that none of the gang members swear, too, but ultimately...who cares.