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I think Microsoft needs to let the Japanese games go (and stop buying exclusive games and content too).

They should still release the console in Japan though, even with the Western games library. There are many Western people living in Japan and possibly even Japanese gamers who prefer Western games. Bottom line is, the XBOX 720 will still sell more units in Japan than many other countries around the world. Just because they aren't dominating doesn't mean that Microsoft will be losing money or that a Japanese launch would be a waste of time.