Look at the user base for PS3's in Japan. It's under 6,000 thousand!!!

I feel that the Japanese console market is a very well informed hardcore audience. They buy games week 1 because the audience plans purchases before the game is even released. They judge games by what who developed them, brand name (Final Fantasy, Monster Hunter, Gran Turismo), and how long it's been in development. After a week, the game is old news, the only people buying it are the much smaller casual audience, people adsent week 1, or people who were unsure of the game at first, but changed their minds.

This logic goes for the 360 as well, but due to the strong domestic association, sales follow to a much lower extent. Wii has a small casual audience, and handhelds are mega popular because Japan is a mobile population.

I don't think it's a matter of xenophobia but a matter of pop culture. Japanese have a well established entertainment industry and they have their on culture for it. It's wrong to say because it was popular in a different country it should be popular elsewhere, tis not always the case.

I love how xenophobic and racism are being thrown around. I think there is a little bit of both on the part of the Japanese viewing games from other countries, but I believe it is only a sliver of the whole story. There is a saying in Japan,

"Yo-ge, kuso-ge" meaning " Western game, shit game." 

Source: http://www.wired.com/gamelife/2010/09/western-games-japan/

Great thread on this topic from NeoGAF titled "Can Microsoft ever achieve success in Japan with the Xbox brand/gaming in general? (Tmac and Castor Krieg provide good answers): http://www.neogaf.com/forum/showthread.php?t=415488

From what I gleaned from the NeoGAF thread, video game consoles in Japan are something for children and teenagers. Adults who are working are expected to save face by not appearing like some Otaku who spends all his time and money playing games at the expense of conforming and being a family man/woman. Thus forth, hand-helds among adults are very popular and the main way for gaming in Japan.

Finally and most important, Japan popularizing home video game consoles with the NES has had a history of being catered to. By cater, I don't mean making a WRPG more like a JRPG with sky high production values, fresco level artwork, linearity, and an epic Shakespearian story. I don't mean a moneyhatting maneuver like Microsoft does by localizing commercials for titles like Halo. Cater for the Japanese is knowing Japanese culture and history, putting it into a video game, developing homegrown development offices, and advertising in a way that is culturally sensitive, thus culturally acceptable.

Why the PS3 failing to gain traction like the Wii is occuring is because I belive Sony as a mulitnational sees the Americas and EMEAA as larger markets and caters to them more now than in past at the expense of Japan. The PSP may blunt this, but not nearly to the extent the DS does for Nintendo.

To gain a picture of how big a market is just read the front page of VGChartz. Super Mario Bros for the NES is the biggest home console game in Japan with 6.81 million sold in Japan followed by New Super Mario Bros, Wii at 4.13 million. Hell, Microsoft and Sony both have had at least 5 titles this generation selling more than that in the Americas alone and the EMEAA alone. Japan is not the market decider today that it was in the 1980s and 1990s. Japan should not be ignored, but it has become less relevant as a market as time has passed leaving Sony and Nintendo to cater more westward at the resentment of some Japanese video game consumers.

If I am wrong, then please correct me and if I left anything out then please add.

except for the ones made by a western studio that have sold well......

This.  I've lived in Japan myself and seen it.

Its a fact that us hardcore gamers only care for new and 'fresh' games, not like mommy who will buy a Mario game for her child regardless of its new or old as long she can have some peace and quiet.

“Japan’s never been very receptive to foreign games,” says Gwyn Campbell, who works for a major game publisher in Tokyo and is the host of a gaming podcast with other expatriates. “The term ‘foreign game’ is traditionally an insult — it means ‘low quality.’”

The anti-Western prejudice is deeply ingrained in the minds of Japanese gamers, who traditionally favor handheld devices like the Nintendo DS over high-powered consoles like the Xbox 360 or PlayStation 3.

Yo-ge, kuso-ge, goes the saying: “Western game, shit game.”

http://www.wired.com/gamelife/2010/09/western-games-japan/

@gilgamesh

Dude, were you drinking again?

A rational explanation I see.

Yes, there are definitely more hardcore gamers in Japan, then there is the other countries. Most gamers get new games within the first 2 weeks. After that, you shouldn't expect any larger sales. Only games that usually have legs in Japan are DQ, Monster Hunter and Mario titles. They usually continue to sell well in Japan. Used games sales are huge in Japan as well.