Sony better be readying a PS5 Portable if they want the have any sway in Japan going forward. Dedicated Home Consoles are just not clicking with the Japanese consumers.
A Handheld, built on the PS5 architecture, with reductions to target 1080p would already be possible, but not ideal. Going to 5nm will give them the energy savings they need to make such a machine viable.
I’ll never stop holding out hope for a proper 3G Vita successor. I still believe a PS Phone in the proper Handheld Form Factor, with a unified OS and Library could set new records for PS hardware in Japan, and become a very successful expand of the PlayStation brand.
Playstation 4 is the second best selling home console of all time and they expect PS5 to outsell it, so I really don't think sony are going to take any drastic meassures to win over the Japanese Market. A handheld & supported software is too costly an investment for one market which will only give them 10-15m sales if they're lucky.
Lets see what a better launch year for Japanese tastes can do for the PS5 (Spiderman, GT7, Resident Evil 8, Demon Souls) vs PS4's (Knack...)
Otherwise I think they just have to be happy being relatively niche in Japan until something like cloud gaming or VR disrupts the market.