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OriGin said:
Japan is the smallest market for PS3 and 360 because the number of core gamers is reducing, and the number of people that are still interested in core gamer games is also. This is the declining market that Nintendo is fighting for, they aren't going to just forget about their home country, they want to try and win it back some how. Tell me again that Japan is the smallest market when DS has sold 16 Million in Japan 12 Million in US 12 Million in 'Other' Right... that is the smallest market - you are correct. I'm not saying what this guy says it true but everyone else that has posted in this thread about Japan being insignificant is also wrong.

People are also missing that Japan has some of the strongest developers in the world and their primary focus is on Japaneese customers. Square-Enix, Namco-Bandai, Capcom, and Konami are far more likely to produce exclusive games on a console that has sold strongly in Japan as compared to a console that has sold poorly in Japan. Why is this important? Well think of all of the games that really have worldwide apeal and most of them come out of Japan; a factor in this is that Western games (typically) don't sell particularly well in Japan.

Whether you need Japan to sell well in the rest of the world is debateable, but performing well in Japan does make it easier to sell well in the rest of the world.