But what do we know about demand? PS4 launching late in Japan meant better supply

I don't get the supply excuse. Sony produced more PS5 at launch than PS4, but decided to supply less to Japan? The message here is either, that japanese customers don't like PS5 or that Sony doesn't like japan. Either way, that is no good sign.

EDIT: To put the supply argument the other way around: although Sony also had to deliver to japan (which they didn't with PS4), they could supply more PS5 to the US and europe. But still japan numbers are that bad.

Famitsu 2020 Top 20 Switch:

1. Animal Crossing: New Horizons (Nintendo) - 6.103.801
2. Smash Ultimate (Nintendo) - 3.926.512
3. Pokemon Sword / Shield (Pokemon Co) - 3.923.239*
4. Splatoon 2 - 3.636.490
5. Mario Kart 8 Deluxe (Nintendo) -  3.344.534
6. Super Mario Odyssey (Nintendo) - 2.157.081
7. Ring Fit Adventure (Nintendo) - 1.969.790
8. Pokémon: Let's Go Pikachu! / Let's Go Eevee! (Pokemon Co) - 1.742.784
9. The Legend of Zelda: Breath of the Wild (Nintendo) - 1.704.639
10. Super Mario Party (Nintendo) - 1.657.894 
11. Minecraft (Microsoft) - 1.619.297
12. Super Mario Maker 2 (Nintendo) - 1.005.111 
13. New Super Mario Bros. U Deluxe (Nintendo) - 950.776
14. Kirby Star Allies (Nintendo) - 832.423
15. Momotaro Dentetsu (Konami) - 755.084
16. Luigi's Mansion 3 (Nintendo) - 678.086
17. Dragon Quest XI S (Square Enix) - 565.655
18. Taiko no Tatsujin: Drum 'N' Fun! (Bandai Namco)- 522.289
19. Fishing Spirits (Bandai Namco) - 522.049
20. 1 2 Switch (Nintendo) - 470.864

TOTAL: 38.088.398

THIRD PARTY TOTAL: 3.984.374

Famitsu 2020 Top 20 3DS:

1. Animal Crossing: New Leaf (Nintendo) - 5.067.988
2. Pokémon X / Y (Pokemon Co) - 4.478.300
3. Pokémon Sun / Moon (Pokemon Co) - 3.822.728
4. Monster Hunter 4 (Capcom) - 3.591.334
5. Yo-kai Watch 2 (Level 5) - 3.169.858
6. Pokémon Omega Ruby / Alpha Sapphire (Pokemon Co) - 3.119.104
7. Mario Kart 7 (Nintendo) - 2.874.900
8. Monster Hunter Generations (Capcom) - 2.832.833
9. Yo-kai Watch 2: Psychic Specters (Level 5) - 2.632.550
10. Monster Hunter 4 Ultimate (Capcom) - 2.617.803
11. New Super Mario Bros. 2 (Nintendo) - 2.593.525
12. Super Smash Bros. for Nintendo 3DS (Nintendo) - 2.558.302
13. Pokémon Ultra Sun / Ultra Moon (Pokemon Co) - 2.513.588
14. Yo-Kai Watch Busters (Level 5) - 2.167.915
15. Super Mario 3D Land (Nintendo) - 2.111.490
16. Monster Hunter 3 Ultimate (Capcom) - 1.941.106
17. Tomodachi Life (Nintendo) - 1.903.290
18. Dragon Quest XI (Square Enix) - 1.772.911
19. Monster Hunter XX (Capcom) - 1.718.052
20. Yo-Kai Watch 3 (Level 5) - 1.495.891

TOTAL: 52.469.880

THIRD PARTY TOTAL: 23.940.253

Wonder where things will end up by the end of 2022, but Nintendo with digital is selling much more on the Switch than it did on the 3DS. Third parties have a huge opportunity in the coming years to really start to profit from this momentum - as we've seen this holiday with Momotaro. Outside of the Lite model there has been no price cuts for the hardware in Japan, so there is still additional ways for Nintendo to actually keep momentum outside of steady line-up for 2021. Overall the Switch will surpass 3DS hardware by the end of 2022. As I've commented I think despite New Horizon, next year is shaping up to be the peak year for hardware sales for the Switch due to a much more varied line-up that would enable Switch to build up a lead in the first two quarters. Also I doubt the holiday will be lacking a huge game like it was this fall. 

In terms of New Horizon, Ring Fit and other evergreens they still have a couple of more years worth of sales within them, only candidate for a sequel is Splatoon and even that is pretty doubtful considering the game hasn't officially launched in China. 

Wow, Switch took 28/30 of the top spots. PS5 got completely shut out and PS4 is almost shut out. Japan belongs to Nintendo.  Considering that third parties are stepping up on Switch next year, I don't really seem this story changing any time soon.

Bit of both I expect. Playstation systems have been in decline in Japan since the PS2, and Sony's focus in the last two generations has increasingly shifted to the West. A huge stationary system isn't a great fit for Japan's tastes, especially when it's lacking noteworthy games aimed at them.

Famitsu 2020 Top 50:

1. NSW: Animal Crossing: New Horizons (Nintendo) - 6.175.256
2. NSW: Ring Fit Adventure (Nintendo) - 1.474.151
3. NSW: Pokemon Sword / Shield (Pokemon Co) - 935.105* (+1)
4. PS4: Final Fantasy VII Remake (Square Enix) - 932.821 (-1)
5. NSW: Momotaro Dentetsu (Konami) - 755.084 (+1)
6. NSW: Mario Kart 8 Deluxe (Nintendo) - 685.525 (-1)
7. NSW: Smash Ultimate (Nintendo) - 473.460
8. NSW: Minecraft (Microsoft) - 473.358
9. NSW: Clubhouse Games: 51 Worldwide Classics (Nintendo) - 455.474
10. NSW: Super Mario 3D All-Stars (Nintendo) - 427.367 (+1)
11. PS4: Ghost of Tsushima (Sony) - 412.868 (-1)
12. NSW: Super Mario Party (Nintendo) - 394.184
13. NSW: Splatoon 2 (Nintendo) - 377.373
14. NSW: Pikmin 3 Deluxe (Nintendo) - 367.461
15. NSW: Dr. Kawashima's Brain Training (Nintendo) - 290.691
16. NSW: Paper Mario: The Origami King (Nintendo) - 267.743
17. NSW: Pokemon Mystery Dungeon: Rescue Team DX (Pokemon Co.) - 259.513
18. PS4: Resident Evil 3 (Capcom) - 258.676
19. NSW: Hyrule Warriors: Age of Calamity (Koei Tecmo) - 255.964 (+2)
20. NSW: eBaseball Powerful Pro Baseball 2020 (Konami) - 248.024 (-1)
21. PS4: Yakuza 7: Like a Dragon (Sega) - 243.769 (-1)
22. NSW: The Legend of Zelda: Breath of the Wild (Nintendo) - 223.290 (+1)
23. PS4: The Last of Us Part II (Sony) - 222.943 (-1)
24. NSW: New Super Mario Bros. U Deluxe (Nintendo) - 203.147
25. NSW: Super Mario Maker 2 (Nintendo) - 197.495
26. NSW: Luigi's Mansion 3 (Nintendo) - 187.050 
27. NSW: Fishing Spirits (Bandai Namco) - 185.054 (+1)
28. PS4: eBaseball Powerful Pro Baseball 2020 (Konami) - 180.243 (-1)
29. PS4: Mobile Suit Gundam: Extreme Vs. MaxiBoost On (Bandai Namco) - 161.014
30. PS4: Nioh 2 (Koei Tecmo) - 156.772
31. PS4: Persona 5 Scramble: The Phantom Strikers (Atlus) - 149.898
32. PS4: Dragon Ball Z: Kakarot (Bandai Namco) - 149.654
33. NSW: Mario & Sonic at the Olympic Games: Tokyo 2020 (Sega) - 138.550
34. PS4 Call of Duty: Black Ops - Cold War (Sony) - 133.930
35. PS4: Trials of Mana (Square Enix) - 133.593 
36. PS4: One Piece: Pirate Warriors 4 (Bandai Namco) - 131.315 
37. NSW: Xenoblade Chronicles: Definitive Edition (Nintendo) - 128.989 
38. NSW: One Piece: Pirate Warriors 4 (Bandai Namco) - 117.954 
39. PS4: Granblue Fantasy Versus (Cygames) - 111.094 
40. NSW: Super Mario Odyssey (Nintendo) - 109.535 (+5)
41. PS4: Cyberpunk 2077 (Spike Chunsoft) - 104.687 NEW
42. NSW: Taiko no Tatsujin: Drum 'n' Fun! (Bandai Namco) - 101.707 (-2)
43. NSW: Dragon Quest XI S (Square Enix) - 101.956
44. NSW: Trials of Mana (Square Enix) - 100.451 (-3)
45. PS4: The Legend of Heroes: Hajimari no Kiseki (Nihon Falcom) - 96.140 (-3)
46. NSW: Mario Kart Live: Home Circuit (Nintendo) - 95.897 (-3)
47. NSW: Derby Stallion (Game Addict) - 91.155 (+1)
48. PS4: Sword Art Online: Alicization Lycoris (Bandai) - 85.010 (-2)
49. NSW: Hatsune Miku: Project Diva MegaMix (Sega) - 78.558 (-2)
50. NSW: Persona 5 Scramble: The Phantom Strikers (Atlus) - 65.653 (-1)

TOTAL: 20.106.601

NSW TOTAL: 15.946.665 (81.7%)

PS4 TOTAL: 3.664.427 (18.3%)

Top Publishers:

1. Nintendo - 12.534.088 (62%)
2. Square Enix - 1.256.166 (6%)
3. Pokemon Co - 1.194.618 (6%)
4. Konami - 1.183.351 (6%)
5. Bandai Namco - 931.708 (5%)
6. Sony - 769.741 (4%)
7. Microsoft - 473.358 (2%)
8. Sega - 460.877 (2%) 
9. Koei Tecmo - 412.736 (2%) 
10. Capcom - 258.676 (1%)
11. Atlus - 215.551 (1%)

• Spike Chunsoft has the biggest launch for the publisher this year with Cyberpunk 2077, but there is worries that the buggy nature of the PS4 version will make it crash out of the Top 30 next week. Depending on how much they spent to market the game in Japan it might turn out this was not profitable short term but perhaps next year when the game is fixed we will see a resurgence. Overall I had completely forgotten about Cyberpunk 2077, which has turned out to be the swan song for the PS4 in 2020. For Playstation ecosystem the end this year will be remembered for Ghost of Tsushima finding success, while the rest of the game launched on the system largely under-performed. 
• For Konami things are looking exceptionally good. As they will end the year as the #2 Publisher in Japan, Momotaro is looking like it will have a strong performance in 2021, and they have a lot of potential investment they need to make as their other business ventures were hard hit by COVID. Still on the gaming side, they will probably experience their biggest YoY growth in a decade. eBaseball 2020 also is widely successful the combined SKUs will probably end up above 500K physical in Japan alone. With digital they might be close to their 2012 result when they sold over 2.7 million software in the Top 1000 games in Japan. 
• Pokemon Co will experience a big drop YoY due to the lack of a Pokemon game in the fall, but this will lead to Pokemon Sword / Shield shipments to eventually catch-up to Gold / Silver which sold 6 million. Next year will be a strong year for the Pokemon Co as Pokemon Snap will perform far stronger than Mystery Dungeon and there is very likely a big fall Pokemon game planned. 
• Square Enix this year will see a big drop compared to 2019, in the end DQXIS launch last year enabled Square to see some YoY growth last year. But they were unable to maintain it as Avengers just exited the Top 50 and is emblematic of their fortunes in 2020. Bravely Default 2 could have allowed them to keep themselves flat but in the end COVID delayed the game and Square themselves admitted they had a lot of difficulty adapting to the new-normal. 
• Bandai is by far the biggest YoY loser on the chart, because of Taiko and Fishing Spirits the company had seen two years of growth but their strategy with a lot of their releases ended up hurting them this year. Adding a Switch SKUs to some of their games could have kept them flat in 2020 or even allowed them to make some gains but instead Mobile Suit Gundam, Dragon Ball Z: Kakarot, Sword Art Online: Alicization, One Punch Man were all PlayStation exclusives that didn't lead to franchise growth or great results. 

The first bolded part doesn't add up because Japan was not included in PS4's initial launch at all. So sony are supplying more PS5's to japan then the comparable point in the PS4's life, which was 0.

As for the latter, the same reason why sony delayed the PS4's Japan launch is the reason why they have pushed more supply to US/EU. We know these places are its priority. Higher Japan stock will mean less for US/EU, where its fighting more direct competition from MS and has more to earn in terms of software and services revenue. we obviously know they've shifted focus to the west, that isn't new information. 

There's no doubt that Sony have lost a lot of ground in Japan, but drawing comparisons to the PS4's launch just makes for messy equations since they're not directly comparable. By all means it could be that with infinite supply PS5 sells much worse than ps4, but we can't draw that conclusion from it being undersupplied at a point where the PS4 wasn't released due to supply constraints.

No, it doesn't add up. If you add Japans later launch to PS4 launch numbers, there are still more PS5.

PS5 launched only second week in europe, for PS4 europe launch was week 3. So I add the first three weeks. For PS4 I add the first three weeks of japans launch to worldwide numbers.

PS5: 1.548.910+1.082.418+400.496=3.031.824

PS4: 1.071.184+98.775+966.210+319.689+58.820+33443=2.548.121

So even despite the staggered launch Sony could produce 500K less units for PS4 than they did for PS5. But yet even with much higher supply, they decided to send even less to Japan. Again: as I just add the japanese launch numbers PS4 should theoretically have a strong advantage here, but Sony optimized it's production for PS5 and could supply much more. That means the low numbers in Japan are a deliberate decision. Sony doesn't care about Japan. Not only not care, actively undersupplying them.

You're still comparing supply to Japan at 2 different points in the launch cycle. By the time PS4 launched in Japan the holidays had passed in the west and sony had already sold over 5m units. I'm not sure if undersupplying is worse than not launch at all in the same period, but in practice you're looking at the same pricipal between this and the pS4 launch: prioritising demand in the west. 

Microsoft are the real winners, they launched X1 much later in Japan and are seeing massive growth because they've dedicated such a massive amount of consoles well ahead of what they did when they launched their previous system there. No doubt 3rd Parties are taking notice.

Just to remind everyone it took Microsoft an year to get 30K X1s shipped to Japan last gen, that's what I call a real turn around - they also have Minecraft on the Switch which is the leading 3rd Party game on the system - so they might actually be more relevant in Japan than Sony this Holiday season :D