there frankly is no way for Sony to compete

the strongest video game brands in Japan these days are Pokémon, Mario, Animal Crossing (all 3 Nintendo),Monter Hunter and Dragon Quest (which both went to Nintendo platforms)

so, what options does Sony have? throw ridiculous amounts of money at Capcom and/or Squeenix to hope they can carry the platform like MH did with the PSP?

They dont need to win Japan. Third parties will push units in Japan. United States and Europe are the two biggest areas and in Europe Sony is in the lead over MSFT but not by much while MSFT is dominating in America. They need to gain ground in the west more than anything where it is much bigger.

Maybe the upcoming Soul Sacrifice, God Eater 2 and Final Fantasy X HD will help the Vita. Also don't forget Phantasy Star Online 2.

Sony have 4 studios in Japan. 1 of them works exclusively on a western-and-mostly-European focused IP (Polyphony). One is a tiny team which has literally fallen apart at the seams (Team Ico). That leaves Japan Studio & Project Siren to try and corner the Japanese market.

It's not like they've closed any studios down which has caused this gap that used to be filled with their games - fact is, they've never really been there. Even when Polyphony, Team Ico, Project Siren & Japan Studio were at their 'peak', the titles were still mostly geared towards the western market (Japan Studio came closest to appealing to the east with things like Dark Cloud, Rogue Galaxy & Ape Escape).

I think the long and short of it is that basically, they've never cared about the Japanese market. When they had the market cornered, all the third parties came to PS1/PS2 anyway so those consoles sold well in Japan, no need to worry about it (and they weren't running a line of handheld consoles as well).

With the introduction of PSP; the early failings of PS3 etc., the position wasn't so concrete anymore - Vita's game drought demonstrates this. And they still don't really care. The small third parties who have always been there will continue to show up - Gust; Nippon Ichi; Nihon Falcom etc. Some of the bigger Japanese companies will pledge some support - SEGA & Bamco for example seem pretty dedicated to Sony consoles.

Like the article says, I'm not too worried about PS4. Things from PS3 will migrate across and it will at least get a foothold in the next generation. I'm sure things like Yakuza; Dynasty Warriors; Atelier will move across with the generational leap and the dedicated fanbases these games have will move with them. Maybe they'll work out something with Squeenix to get Versus XIII there. But otherwise, I certainly doesn't appear like Sony is too fussed about making the console any bigger than that. Which is alright for the PS4 - but as we're seeing at the moment - is lethal for the Vita which doesn't have the same dedicated series which could have transitioned across from PSP.

The PS3 total will end up pretty close to the Wii in Japan when all is said and done so this is mainly a portable issue.

The ps3 does fine in japan. Isn't it?
Keep in mind japan is handhels territory. The average worker travels like 2 or 3 hours a day for work. And they work more than 8 hours if i remember correct. So at home they don't waste that much time for consoles like us...

And well the vita... different story. Yes the 3ds has more japanese appealing games but its outselling the vita in a ridicolous way.

The author is viewing this from a backwards perspective, Non Nintendo domination from the likes of Sega and Sony are the exception not the rule. On average Nintendo controls (handheld/console) ~50-66% of the Japanese market at any given time even with the dominating PS1/PS2. That's how its always been. So in essence Sony is gift wrapping nothing. Maybe they see Japan's declining population and decided initially not to invest heavily as the main fight would be waged outside of it.

It is a bit disappointing. Not from Sony's lack of output, but from their lack of output, but from their lack of work with 3rd parties

They did try, with White Knight, but it didn't really come off, they should really try harder, more like Ni No Kuni!

But in all honesty, their has been a lack of Japanese styled games, even the Japanese 3rd parties and now making Western games. I want more old fashioned RPGs, like FFX and Lost Odyssey

As long as Nintendo gets all the Japanese stuff I don't like (Dragon Quest and Monster Hunter) and Sony gets all the Japanese stuff I do like (Yakuza and Dynasty Warriors), this will be continue to be a good arrangement for me.

Sounds like the OP want Sony to lose focus of the long war and fight with Nintendo over a small piece of land that 3rd parties would fight for them regardless.