In the System Configuration window, in the Graphics Settings tab, there is a group of four settings for Shadows: Self, Party Members, Other NPCs, and Enemies. Each has a Display and a Hide option.

The setting for Other NPCs does not just control shadows for NPCs, but for other players as well. It could be argued that "NPC" in this case means people who are not the specific player toggling the option, but that's not generally how the word is understood. (The Japanese text for this specific setting is 他人.) A more appropriate text would probably be along the lines of "Other players/NPCs".

This is probably also an issue for the similar situation of the Movement Physics options a little further down in the same tab (which likewise has Self, Party Members, Other NPCs and Enemies options), but I've been unable to test that as it's far easier to see shadow differences on other people than it is to see movement physics differences.