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As bad as it might be, they can't just pull out of Japan because it might be worse for them if they did.

Think about it for a second, with no presence in Japan, it would be less likely Japanese studios would make games for the XB1. And if they did, MS would constantly have to pay them to make the games for their system for the west only whereas the competitors likely wouldn't have that problem because they already have a presence in Japan. So imagine them having to constantly pay Square Enix, Namco Bandai, Sega, Konami, Capcom, etc for literally EVERY game to come west just because they don't have a presence in Japan. That would become a problem in a hurry.

Plus, there's also the face value. If they leave Japan, it would be saying to the world "we failed"