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PAOerfulone said:
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The decline of third-party game sales is because they choose to primarily, or even exclusively, develop more Western-focused IPs, or take their IPs in a more Western direction, for international PlayStation (and PC) audiences on top of withholding or not releasing them on Switch. Because Japanese developers have been trying to follow the Western mentality of "More, More, MORE graphics" with diminishing returns. Which may work in the Western markets, but the Japanese market don't care about specs and graphics nearly as much as the Western ones do.

Because in order for those PS5 and even PS6 games to run well and be playable on a PS handheld, they'd have to scale them back to the point where it can also run on Switch 2 with little effort. If that happens, then there really is NO reason at that point to NOT put their games on Switch 2 unless Sony money-hats the hell out of those games.

There is only 2 points I want to adress in your post: 

1) Third party decline started during PS3 era. There is no evidence developers shifted away from japan to pursue Western audiences before that. If anything I will say it was the opposite: The lukewarm responses of japanese audiences during late 2000 and yearly 2010s is what made Capcom and Square to pursue international markets. Needless to say there is major support of JP developers to Switch since its mid life and after 8 years of its inception there are only two third party major sellers on Switch: Momotaro and Monster Hunter Rise (well and the Dragon Quest recent remakes, if we count multiplat ganes)

Third parties in Japan are seemingly in "mid-level hell", even the ones that aren't exactly trying to get westernized like Persona and Tales of Arise are receiving more excitement from outside Japan than from inside Japan. I never resllt bought the argument that Japan developers tried to "westernize", this might be true for a game or other, but it doesn't apply single developer let alone every single game

The issue here is simply hardware. Offering games in handheld form will help to cultivate audience for third parties again, arguably 

2) This second point however is really good and it's why Sony will never be a dominant force in Japan for the foreseeable future, hence why I think not even a handheld can push Sony to above 15 million units 

Switch 2 will likely run most of the upcoming PS6 games. However there are still some audience for western games in Japan, as well as Sony own first party games sells well like GT, Ghost series, Spider Man

In past (PS3 era) games like COD and GTA used to sell okay numbers. This can repeat, if they were released in a healthier platform. Right now PS5 is a hindrance because the hardware itself is undesirable for japanese audience

For Sony to grown games that japanese people like they need to first release a better console. This is not a software issue, it's first and foremost a hardware issue. Once the hardware issue is fixed, then Sony can think of releasing better games to japanese gamers