One thing that is missing from the discussion is the price point of the PS handheld in Japan. Switch 2 is selling this well in Japan due to a number of factors, being a hybrid console, having exclusive games from ultra popular IP like Pokemon, and being priced pretty well, 50k yen. A PS handheld that plays games from less popular IP in Japan costing 80-90k yen or more will not sell anywhere near as well as Switch 2 there, even though its a handheld as well.

Ultimately, a handheld that runs God of War will not compete with a handheld that runs Pokemon in a market such as Japan, the gulf in IP popularity is simply too big. A Pokemon spinoff game like Pokopia on a newly released console (Switch 2) is on track to outsell all PS5 games in Japan after a few weeks on the market.

How does Sony compete by having a more expensive device playing less popular games than the Switch 2 in Japan? The market of high fidelity gamers in Japan is smaller than the market of high fidelity gamers in the west, in Japan, low budget games like Tomodachi Life mostly outsells AAA games.

I don't see a PS handheld in Japan competing with Switch 2 there, i mostly see it as a way for them to try to stop the bleeding and the continued decline of the ecosystem there.

This is the reality of Japan for PS. Making a handheld device is not going to fix every issue for Sony in Japan, it's a step in the right direction, but much more is needed.

#1 price point, you need to be competitive against Nintendo, period, dont come in with some super powerful highly priced device. If you do expect to lose again
#2 games that the Japanese audience want to play, and build franchise, stop abandoning ips you spend all generation building up. 
#3 Sony needs to have not just one, but 6 or more major exclusive IP's to sell their system. There needs to be 1 must have game released a year that is only on Playstation that Japan wants, not 3rd party, but 1st party.
#4 The audience from PS1-PS2 era are mostly gone, some have died, some have moved to PC, some have moved onto the switch, some might not even game much anymore. Sony should take the approach of "we are just entering the market for the first time and need to be super aggressive". It's time to change their 5 generational model into something new because their model is archaic and failing (hence why ever generation since PS2 they have lost more and more ground).


It's not impossible, but Sony really has a lot of work to do if they want to get a strong Japanese foothold again.