It boils down to price and the availability of the Gameboy here.  The Gameboy was still a hot item up until this year.  Parents bought gameboys instead of DS's due to the super low price.  The DS will see a price drop this Christmas in North America or shortly after.  That's when you'll notice the DS will pick up steam as the true successor to the GBA.  Parents will purchase it on a whim to give their kids something to do in the car.  (The same reason so many GBA's sold).  

Japan is very important as a market in some game genres mostly RPGs. But they're mostly influencial to the other two markets. See Nintendogs: the game could've completely bombed if the Japan craze didn't reach there; same with Pokemon 10 years ago. Japan REALLY matters.

Developers know japan is of declining relative importance, in terms of both its economy, and its population. They know the biggest profit growth will come from the west, and wont be happy if the PS3 flops in America.

Isn't Japan the only reason the Wii is ahead of the 360? The 360 is still ahead of the Wii in both NA and Others, so I'd say it matters a lot.

Actually, it has more than twice the land area as Florida, with three times the population density.  127 million people live in Japan.  Honestly, leo, where do you come up with this stuff?

For the type of games I like, Japan matters alot. I really don't care for about 90% of the American games. For the Console War, The West has created more of its own fanbase.

Of course Japan matters, it's the second largest gaming territory.

I think the problem is it seems only Nintendo know how to be successful in Japan, and I mean, really successful. You can't question the amazing DS sales, but what really astounds me is the software sales. The Brain trainings, New Super Mario Bros, Animal Crossing, MArio Kart DS, POkemon etc all have 4 mil + sales in Japan, an attach rate in excess of 20%.

My reckoning is Japan is potentially just as big as America in terms of sales potential, but only Nintendo know how to hit the market and get the best sales.

And if for nothing else, Japanese developers like to be able to release their games to success in their home territory. I can hardly imagine like Square, SEGA, namco, Capcom, Konami etc ignoring a market which makes so much revenue for them.

Japan matters a lot now in the future it is possible that it will decrease a lot.

Japan will ALWAYS matter. For it is because of that region that game consoles still exist today in the first place.

They are the World's Capital for Videogaming. Televideo gaming. Television gaming. Digital electronic gaming on a TV Screen.

BTW:

Japanese population: 127,433,494 (2007 estimate according to wikipedia) [10th largest in world with 2nd largest nominal GDP in world]

USA population: 302,643,000 (2007 estimate according to wikipedia) [3rd largest in world with the 1st largest nominal GDP in world]

300,000,000 ÷ 2 = 150,000,000. Japan is a little under half of USA's population in an island barely bigger than Florida and Georgia combined WITH that land being 4/5 unlivable mountains.

Largest population: China with 1,321,851,888 (2007 wikipedia estimate) [4th largest nominal GDP]

2nd largest population: India with 1,120,000,000 (2007 wikipedia estimate) [12th largest nominal GDP]

John Lucas

Of course Japan matter.
The only people doubting this are Xbox owners probably.
That's because they are the only ones with a skewed vision of reality.
The XBox 360 is full of western, I should say american centric, games. But to a point you'll be sick of it. It has loads of FPS and racers and american sports, and Xbox 360 owners gobble these up till they're blue in the face.
Just look at the games always cited for this console, just look at the MS stats on most played games. Then, there's another skewed vision of XB360 owners because of a self-fulfilling prophecy: that the "best" reviewed games, those with the highest scores, are western. Which should always have been the case, as the reviewers that give these scores are mostly westerners, and what's worse, mostly from the USA. With the XB360 having one year headstart, I'm not surprised at the situation at all.
But it created this strange delusion that Japan doesn't matter anymore.
Nintendo just proved that's not the case, at all.
And I rather think that the japanese dev time is finite, and that there's a big mistake made from most hardcore gamers I read or hear about: they know the handheld and home console markets are different, but they have this strange idea that handhelds are not consoles.
The problem is that handhelds still are console, and even if easier to develop, games for handhelds still need developers to make them. And these developers are from the same companies as those that make home console games.

Just look at Nintendo: they can't magically make as many home console games if they also have to make handheld games.
The japanese devs just made most games for the most successful current handheld, which is the DS. The support from western devs for the DS is just plain poor, Japan alone made the DS a success. And it's the same for the Wii.
So gaming is still important in Japan, it even has INCREASED, but when people just delude themselves by thinking "handheld don't count", of course, they end up with an erroneous conclusion like "Japan doesn't count anymore".
This is helped by the fact that a lot of those gamers have trouble realizing that even if it's not HD, the Wii counts as a current gen console too.