It's a mix of marketing, line up, and brand name.
This generation Microsoft did a respectable job of wrapping up Japanese exclusives early on, but while franchises like Tales and Star Ocean were announced for 360, franchises like Final Fantasy and Metal Gear Solid remained exclusive to ps3. On top of that, these games were really only timed exclusive, and were announced for ps3 soon after they released on 360, with plenty of extra content. What few true exclusive IPs Microsoft released were poorly marketed, and thus were unable to offset these losses. Just look at Mistwalker. Nintendo's been hyping up the Last Story for months, doing numerous interviews with the "makers of Final Fantasy" like Sakaguchi and Uematsu in Famitsu. Mistwalker's IPs on 360 didn't receive near that level of coverage, which is probably why the Last Story's first week of sales were higher than Lost Odyssey's lifetime sales in the region.
Given they eventually gave up on contracting Japanese exclusives through out 2009 and 2010, Microsoft lost what little momentum they had going in Japan, which led many of the hardcore gamers they had won over in 2007-2008 to switch to ps3.
Such weak tactics aren't going to work against incredibly entrenched brands like Nintendo and Sony in their home market, especially when those companies still have the biggest IPs of the region exclusively ontheir platforms (Mario, Dragon Quest, Final Fantasy, Metal Gear, Gran Turismo) and everything else is multiplat.
Oh, and there's Xbox Live. Japanese gamers aren't exactly the biggest fans of online multiplayer, and I doubt they'd be willing to pay to play online the few times they actually want to give it a try. And Live's services aren't near as robust in Japan as they are in the US, despite having a similar fee.
