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My question is, why would they release it in Japan. I console has a freaking install base of 650,000. Sony probably paid them money not to release it, or they don't wanna risk bad blood with Sony for 40,000 sales.

It wouldn't make any sense to change their minds and release it in Japan now. If they were going to do it they would have just announced it from the start.

There is a lot more to lose at this point making it multi-platform on an install base that basically doesn't even exist. People in Japan will buy PS3's to play FFXIII. End of story.