That's a big understatement, it's the third best selling game system in Japan of all time.

Nintendo was in a very good position in Japan at the time.

Even the Wii U was competitive with the PS4 until Nintendo dropped it.

The 3DS was way past it's peak (2012) though. The 3DS was already slowing down significantly even in Japan when the Switch launched, but still selling well.

Famitsu Top 50 Third Party 2021:

1. [NSW] Monster Hunter Rise (Capcom) - 2.303.192
2. [NSW] Momotaro Dentetsu (Konami) - 1.067.953
3. [NSW] Minecraft (Microsoft) - 398.986
4. [NSW] Story of Seasons: Pioneers of Olive Town (Marvelous) – 281.140
5. [NSW] Monster Hunter Stories 2 (Capcom) - 205.463
6. [PS4] Resident Evil Village (Capcom) - 191.983
7. [NSW] Baseball Spirits 2021 (Konami) - 159.492
8. [PS4] NieR Replicant (Square Enix) - 158.265
9. [NSW] Crayon Shin-Chan (Neos) - 156.274
10. [NSW] Bravely Default II (Square Enix) – 136.091
11. [NSW] Rune Factory 5 (Marvelous) - 127.968
12. [NSW] Fitness Boxing 2 (Imagineer) - 91.326
13. [NSW] Dragon Quest XI S (Square Enix) - 89.135
14. [NSW] Human Fall Flat (Teyon Japan) - 81.457
15. [NSW] Little Nightmares II (Bandai Namco) - 72.796
16. [PS4] Samurai Warriors 5 (Koei Tecmo) - 72.727
17. [NSW] Sakuna: Of Rice and Ruin (Marvelous) - 65.620
18. [NSW] Hyrule Warriors: Age of Calamity (Koei Tecmo) - 62.119
19. [NSW] Samurai Warriors 5 (Koei Tecmo) - 61.350
20. [NSW] Fishing Spirits (Bandai Namco) - 60.360
21. [NSW] Taiko no Tatsujin: Drum 'n' Fun! (Bandai Namco) - 59.165
22. [PS5] Resident Evil Village (Capcom) - 53.953
23. [NSW] Minecraft Dungeons (Microsoft) - 38.147
24. [NSW] Puyo Puyo Tetris 2 (Sega) - 36.105
25. [NSW] Family Trainer (Bandai Namco) - 35.273
26. [NSW] Mario & Sonic at the Olympic Games (Sega) - 34.615
27. [PS4] Scarlet Nexus(Bandai Namco) - 31.665
28. [PS4] Biomutant (THQ Nordic) - 30.292
29. [NSW] Densha de Go!! (Square Enix) - 29.624
30. [NSW] Apex Legends: Champion Edition (Electronic Arts) - 29.057
31. [NSW] eBaseball Powerful Pro Baseball 2020 (Konami) - 27.539
32. [NSW] Disgaea 6: Defiance of Destiny (Nippon Ichi) - 25.744
33. [NSW] Jack Jeanne (Broccoli) - 25.518
34. [PS4] Little Nightmares II (Bandai Namco) - 24.968
35. [PS4] Judgment [New Price Edition] (Sega) - 24.271
36. [PS5] Final Fantasy VII Remake Intergrade (Square Enix) - 23.491
37. [NSW] Neo: The World Ends with You (Square Enix) - 22.028
38. [NSW] The Quintessential Quintuplets Double Integral (Mages.) - 20.374
39. [NSW] A-Train: All Aboard! Tourism (Artdink) - 20.043
40. [PS4] Disgaea 6 (Nippon Ichi) - 18.289
41. [NSW] The Great Ace Attorney Chronicles (Capcom) – 18.197
42. [PS4] Dragon Quest XI S (Square Enix) - 16.352
43. [PS4] Sakuna: Of Rice and Ruin (Marvelous) - 16.235
44. [NSW] Angelique Luminarise (Koei Tecmo) - 14.506
45. [PS4] Ninja Gaiden: Master Collection (Koei Tecmo) - 14.483
46. [NSW] Winning Post 9 2021 (Koei Tecmo) - 14.368
47. [PS4] NieR: Automata - GotY Edition (Square Enix) - 13.712
48. [PS4] Guilty Gear: Strive (Arc System) - 13.574
49. [PS4] Winning Post 9 2021 (Koei Tecmo) - 13.221
50. [PS5] Scarlet Nexus (Bandai Namco) - 12.785

TOTAL: 6.601.291

NSW TOTAL: 5.871.025 (88.9%)

PS4 TOTAL: 640.037 (9.7%)

PS5 TOTAL: 98.403 (1.5%)

Top 10 Third Party Publishers 

1. Capcom - 2.772.788 (42%)
2. Konami - 1.254.984 (19%)
3. Marvelous - 490.963 (7.4%)
4. Square Enix - 488.698 (7.4%)
5. Microsoft - 437.133 (6.6%)
6. Bandai Namco - 297.012 (4.5%)
7. Other - 264.348 (4%)
8. Koei Tecmo - 252.774 (3.8%)
9. Neos - 156.274 (2.4%)
10. Sega - 94.991 (1.4%)
11. Imagineer - 91.326 (1.4%)

For comparison according to Media Create's White Book last year Third Party Publishers in Japan sold a total of 14.77 million software across the Switch/PS4 with Switch only having a slight lead of 57%(8.43 million) to 43%(6.43 million), it's very questionable if third party sales will even manage 2 million sales on the PS4/PS5 this year. In terms of sales for third parties anything below 2 million is around 70% drop YoY. 

When we look at Sony published games and 2nd party titles like Demon Slayer there isn't much coming up this year that will move the neadle in Japan.

As third parties were always the main thing driving Sony software in Japan it's going to be interesting if the active audience of the PS4 migrates to the Switch; allowing some additional growth into demographics which used to be more aligned with PlayStation in the past. It remains to be seen but this could be viewed as an additional factor as to why I don't expect Switch to slow down in a huge way in the coming years. 

For the rest of 2021 from a third party perspective we have a few games dated for 2021,

Konami - Yu-Gi-Oh(Switch Exclusive); eFootball(PS Exclusive); Power Prokun Pocket R(Switch Exclusive); Girl’s Side 4th Heart(Switch Exclusive)

Marvelous - No More Heroes 3(Switch Exclusive) ;

Bandai Namco - Tales of Arise(PS Exclusive); DBZ Kakarot(Switch Late Port); Super Robot Wars 30(Same-day Multiplat)

Koei Tecmo - Dynasty Warriors 9 Empires(Same-day Multiplat); Blue Reflection: Second Light(Same-day Multiplat)

Atlus - Shin Megami Tensei V(Switch Exclusive);

Sega - Lost Judgement(PS Exclusive);

Nihon Falcom - The Legend of Heroes: Kuro no Kiseki(PS Exclusive)

Compile Heart - Neptunia x Senran Kagura: Ninja Wars(PS Exclusive)

Level 5 - Megaton Musashi(Same-day Multiplat);

The upcoming Direct and Japan Games Expo likely to reveal another dozen or so titles for the fall and early 2022. 

I think the most important thing in the coming months is how PS Exclusives perform; as we can see in the list above there is a good mix of bigger games and smaller titles coming exclusively to the PS ecosystem. If PS Exclusives continue to underperform it will put pressure on certain franchises and publishers with Bandai, Sega, Falcom and Compile Heart being the most impacted - Arc System Works, Kadokawa Games, Spike Chunsoft & D3 are the other publishers that release a fairly large number of titles and were more closely aligned to PS ecosystem in the past and will be impacted by the software situation if their future games aren't at the very least multiplat. 

As over 90% of software sales are concentrated on a single system it's difficult to envision Switch hardware dropping below 5 million next year, especially when considering that Splatoon 2, Arceus and Breath of the Wild sequel all launch and we are expecting things like an exclusive Resident Evil game; Dragon Quest XII; Monster Hunter Rise expansion; Project Triangle etc. Next year is shaping up to be the Software peak for the system where third parties could very well achieve over 20 million sales, while hardware sales will likely be around 28 million just 5 million shy of the DS lifetime sales.

In the meantime there is no guarantee that the actual active user-base on the PS5 in Japan will ever reach 5 million, the current tie ratio brings me to believe that the active PS5 user-base is around 300K at most in the country. If PS loses other smaller companies aligned to their hardware in 2022 and are left with only the third party games they moneyhat, the system will be relegated to competing with the PS Vita as the worse selling PS hardware in Japan. 

The main actions Sony can take is acquisitions or investments into Japanese Third Parties big and small; without a monetary reason a lot of the countless third parties in Japan will abandon PS5 development.