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Fight-the-Streets said:

The issue with Japan is that since the Asia-crisis in the 90', Japan has grown only little economically as well as the increase in salaries. On top of it, Japan's society is becoming old and is shrinking. These are all factors that affect the spending of money into none-life-essential things and even for spending on leisure, there are tiers and video games are not in the top tier there. On top of it, flats and rooms are very small in Japan contributing to Japanese prefering handhelds over stationary consoles. On top of it, if the economic situation for a big percentage of Japanese is tough, they either only game on their mobile phone/tablet or PC/notebook they already use for work or spending $300/350 for a Switch (Oled) or $200 for a Switch Lite (actually less, as prices in Japan are lower than in the US) as it's just more feasible for them than spending $500 for a PS5 (I leave Xbox Series S out here as JAPANESE DON'T WANT MICROSOFT CONOSOLES). On top of it, as money is sparse, many Japanese gamers probably ending up with mainly buing cheap independent games. For that, they don't need a powerful PS5.

I agree with all your points except the space, it's a myth. Average apartment size in Tokyo is 69 m2, it's not huge but looks the same size as the apartments in Brazil. Needless to say not everyone lives in big cities like Tokyo where space is more expensive

I believe the preference from handhelds are less about size space and more about using videogames outside home, when commuting or when having breaks in school and work. It's also explained why big cinematic games don't match their playstyle, they need games to be played mostly in shorter bursts and leave without major drawbacks of their next playtime. This heavily imply mobile/portable games are their choice

There is also a social component. In Japan you play what your friends play. The reason of why MH only exploded in Japan when released on handhels is less about gaming quality and more about they offering local multi-player with PSP to "push" groups of friends to play together

Having less money to spend on gaming is certainly an issue as well, even more so among kids and teenagers and Switch is half of the price of PS5 (29k yen vs 67k yen) and you also needs a TV to play the games