It wouldn't be good PR to just drop a console from a country. It's a real kick in the balls to those 1.6million Xbox owners and would make them probably just switch to Sony or Nintendo. They have to have a presence out there as well as the market can always change. Next gen Xbox may do much better.

Because Japan and the rest of asian countries does not get an asian version of the most popular western games such as Halo 3? But hey, they are missing a lot.

Japan=/=Asia

just like US=/=world

If they take what they've learnt this gen and apply it next gen, who knows, they could reach 2.5 or 3m+, it's worth it as long as it doesn't cost them an absurd amount.

Because selling 1M consoles at $50 profit orso (loose numbers) is still 50 million profit (from 1 country!)

So let's make the question:

Why would you have abandoned 50 million dollars of profit for no good reason?

And like thehusbo wisely said, the market may change, and they might do better some day.

What profit?

Not if far more than $50m was spent in marketing and advertising the product.

I don't have the figures but it is no secret MS tried to buy Japan and they worth it at far more that 50m.

I agree however that the market may change. This is shaping up to be Asia's century and if you can't sell anything well there in the future you will be loosing out to those who can.

(China and) Japan are the world's top luxury goods buyers, MS knows this, that's why they keep at it. It is not only about now, it's about the future.

Looking at the figures on vgchartz the original xbox sold 530k. The 360 has sold 1.57million. So clearly MS has made some progress in terms of marketshare.

If they manage a similar improvement in marketshare next gen of +1million it would mean 2.5million lifetime total. Or if it manages to triple figures like the xbox to 360 then it would be 4.5million lifetime total. I would expect they are hoping to make at least 2 million lifetime for the next xbox.

They are slowly building an audience there. When you have a game like Bayonetta it gains an extra 90k of sales from Japan for 360 it is better than not having those sales.

well MSKK have some crazy profit every year

http://www.weblio.jp/wkpja/content/%E3%83%9E%E3%82%A4%E3%82%AF%E3%83%AD%E3%82%BD%E3%83%95%E3%83%88_%E6%97%A5%E6%9C%AC%E3%81%AB%E3%81%8A%E3%81%91%E3%82%8B%E3%83%9E%E3%82%A4%E3%82%AF%E3%83%AD%E3%82%BD%E3%83%95%E3%83%88

Probably don't want to piss off Japanese developers. If they pulled out of Japan probably some Japanese developers would threaten to not make games on the 360 anymore/360 successors.

Worst case scenario as Salnax said; you want to be in that market if the shit hits the fans with either Nintendo or Sony, because while they are a 3rd choice in Japan they could b the 2nd choice if someone decides to leave the market.

Why does MS even bother releasing the 360 in Austrailia? Fun fact, the Austrailia 360 userbase is smaller then Japan. 

Just because its not popular, that still 1.6 million 360s sold. Every market is still a market.