There's no need to worry about Japan's home console market anymore, because things are looking up. Here are a bunch of Famitsu sales numbers as of December 20th, 2020.
Last gen's total: 12.68m
PS4 - 9.27m
WIU - 3.30m
XB1 - 0.11m
The PS4 isn't done yet, so the final total will be a bit higher than the above, anywhere between 12.70 and 13.00m.
This gen's total: 14.31m
Switch - 14.04m
PS5 - 0.24m
XBS - 0.03m
And this gen isn't even remotely close to its end. Way to go, Japan.
Simple question to spur some discussion: Are you still worried about Japan's home console market?
One problem with this is the last gen's numbers don't include the 3DS. While not a home console, it makes the comparison a little unfair because the reason the Switch is killing it is, in part, due to the fact it's a handheld and handhelds do well over there.
Still, to your point, I think it's never been an issue with the game market shrinking but shifting. Japan has moved away from the traditional consoles and this is likely what spurred Nintendo to create the Switch and perhaps even the Wii U. Sony was smart to kill their handheld line as they can focus on one system, but the Catch-22 was that they gave up the Japanese market. Nintendo did the same thing (and perhaps had the same idea before Sony killed the PSP), but it was clear they didn't want to give up their market at home. The idea clearly worked as now Switch does well in all markets, where Sony is going to end up like Microsoft and rely on a few Markets. Switch can sell in any market and is now doing well in China.
To your question, there is nothing to be worried about. Japan's market is clearly doing fine. It's more that they needed something that appealed to them. The same could be said about China (CCP rules aside) and Korea. It's probably better to look at the "Game System" market as a whole (which is basically all games less PC and phones). People don't like to do this because Sony has never done well in the handheld market. With Switch, the old distinctions are irrelevant. Japan's Game System market is doing perfectly fine and will continue to do fine.