Nintendo always had the Japanese market except during the PS2/Gamecube/GBA days where it was even. I'm seeing a lot of people saying that the reason the Switch is dominating is because it's a handheld while PS4 and PS5 are home consoles. No, I don't believe that is the reason. Playstation has been on a decline in Japan after the PS3 and PSP days. PS4 sold 1 million units worse than the PS3 and the PS Vita sold 1/3 of the PSP sales. If Japan was all about that handheld gaming then someone explain why the PS Vita sold 6 million in comparison to the PS4's 9.4 million. Sony making a new handheld system isn't going to suddenly make them relevant in the Japanese market, because the PS Vita showed that even with a handheld system Playstation is just losing relevance. The PS5 will be no different. It will sell worse than the PS4. I'm predicting lifetime sales will be 6-7 million.

It's the only truly relevant system right now

Xbox is a niche console with barely any presence

And PS5 is like a side market that appeals only a small percentage of people

Not so much the Switch, but Nintendo.

Nintendo has held dominance in Japan for a long time now.

I don't think this should've taken the whole Switch generation to realize the fact. The following year after the initial release of the console. It was evident the system was gonna perform completely over what the Sony consoles did in the past. Helps that they brought some of their flagship titles to the HD era to consolidate their position.

The entire market? No, that'll never happen. The vast majority of the market? Yeah, it was like that last gen too, nothing new here.

The rumors are that Sony of America screwed over Sony of Japan and took over all the design, sales, games strategy and marketing. There were nothing that would appeal to non-US users, so Nintendo just walked in. It's everything mentioned in the thread and more. Imagine if Xbox suddenly only had games about wars in 1600s India, would anyone outside India buy it?

The 3DS was never as dominant as the Switch is. It never had 90% of the hardware and software market. And there were never any weeks where all top 30 games were 3DS games. The Switch's dominance is something new, at least it was when it started, it's been some time.

Something new here:

It has so much to do with the Japanese market enjoying handhelds more that PlayStation Vita is by far the worst selling PlayStation console in Japan, PSV software sales were especially low.

PSP and PS3 were 'alright' at the time because the software development was still split per specific system and each one of DS, PSP, Wii and PS3 had a well defined role in the market however already back on the DS/Wii era everybody in Japan got the memo that Nintendo (as in the software publisher Nintendo) was stronger than the rest put together which steered the actions and expecations with the following generations.

Nowadays most japanese third-party games are shared between Nintendo platforms and PlayStation platforms:

It's not the only factor but a big part of the reason why is because one is a handheld and the other isn't. Japan was the only place the PS Vita had any amount of real relevance, it selling over half of what the PS4 sold there while it was nowhere near that anywhere else is an example in favour of Japan's handheld preference, not against it. There's also that the top 4 best selling systems in Japan are all handhelds which is not the case for NA and Europe.

You're right that Playstation is losing relevance there though, them making a new handheld would only help them there if it was properly supported.