Well ,its clear the core userbase of Japan has decreased a good 50% in the last years.And many of the new users (most of whom purchase the Wii or DS as consoles) are casual gamers that buy the machine for the bundled game or 2-3 games at best and they leave it to gather dust.
Still ,there are some bright spots.
The franchises with some name have sold the same on the new machines as they did in the very popular PS2 even if the userbase is a lot smaller.DMC4 ,Metal Gear Solid 4,Hot Shots Golf ,Yakuza ,Resident Evil ,Gran Turismo Prologue ,Pro Evolution Soccer ....each and every of these games have sold comparably to their latest opus on the PS2,some even better.Tales of Vesperia has sold to date 350K units between PS3 and 360 and can hope for at least 450K units ,a very good number for a Tales game.Once you add the PS3 numbers to SOIV the numbers can easily top 500K units ,comparable to SO3 released on the PS2 heyday.The Gundam,Macross and other mechas games are selling really well on the PSP,the DS and even the PS3 when they appear in the later.
Still ,its clear they have made a lot of mistakes.I have never ,ever ,understood why Sony has always refused to carry Singstar to Japan with local songs.I really dont understand it.And I have my doubts they will release Eye Pet in Japan .Similarly ,if the music games as Guitar Hero ,Rock Band ,DJ Hero etc had been localised for Japan ,well promoted and with a japanese-music portfolio it could have been a massive hit that drove the industry.
Most japanese developers are very small and have had real problems adapting to the HD generation .They have opted for the DS ,PSP and Wii to continue their games and have been left behind in technology and art direction.
I hope things get better.I still think a well designed japanese game by Capcom ,Tecmo ,Konami ,Sega ,Square ,Namco ,some Sony teams(Team Ico,Polyphony ,Clap Hanz),Nintendo and some others is something very special and truly different to the usual occidental game with cool and dark characters and bald space marines.