Considering that the Wii had no real competition in Japan for awhile, it sold a hell of a lot at the beginning (The PS3 was too expensive for the maintream Japanese gamer and it didn't have many quality games then. And the Japanese mainstream snubbed the Xbox because it didn't have enough name power. Tales and Star Ocean isn't enough. And people expected these games to be timed exclusives. Even before ToV launched on the 360, there was speculation that Namco would pull a Tales of Symphonia and port it to PS3.)
Now that there are like 9m Wiis in Japanese homes (saturation) and the PS3 has a competitive price point and library, demand for the Wii has slowed considerably.
If Nintendo wants the Wii to be more competitive in Japan, they need more third-party support on the console. Third-party support for the DS is ultimately what kept the PSP in second. The PSP was a serious threat for the DS in Japan, often overtaking the DS at times. But Nintendo made some strategic decisions (DSi) and the third-party support helped it stay competitive to the PSP. Lack of third party support is the main reason why the N64 and Gamecube lost badly to the Playstation brand in Japan.
That all said, there is one major difference for Nintendo this gen compared to last gen in Japan: The Wii has freakin Dragon Quest this time. That's the big X factor. I'm certain there are plenty of Japanese gamers who love Dragon Quest that haven't bought a Wii yet. The Wii is going to get a huge (but temporary) boost when DQX comes out.
