To be fair, the PS3's fortunes weren't the greatest either until recently, and even then it hasn't put up a big total. Japan this generation more than ever moved away from consoles toward portables -- DS and PSP stomped all three consoles combined. The Japanese market has also been declining for years now, making it a lot less important than it used to be. Right now, there are only a few big third-party Japanese games (Metal Gear Solid, Final Fantasy), and necessity has pretty much ensured that Microsoft will see those games on its systems. Microsoft used to think that success in Japan was key to seeing success everywhere, but with how Western developers have become so prevalent this generation it's no longer required to do well in Japan. Even without solid Japanese sales, the 360 shipped 1.7 million consoles versus the PS3's 1.8 million this past quarter.
I'm sure they'll keep trying to crack into the market, though. They sold three times the amount of consoles there this gen compared to last gen. They just have to have the right package from the get go -- the 360 launch everywhere was kinda bad all around, and it was plagued with the RROD stuff early on. If they have an appealing console design, some good games early, and improve their marketing strategy in Japan they'll do better next-gen than they did this one. The 360 has a pretty hardcore following in the country, and there are still a ton of Japanese games on the system, not even including those early RPG exclusives.
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Simplicity is the ultimate sophistication.