I think Microsoft will make respectable inroads into Japan next generation and set itself up nicely for whenever the 3rd iteration of Xbox is released. MS has learned alot from its mistakes and already seems to be making the right adjustments. Putting your tail between your legs and running in fear is not the way to be successful in such a tough market. What they're doing and what I think they'll do (or need to do) to make inroads:
1.) Design: Xenon must look as hip or more hip than most components in Japanese homes and it must be sleek/small at the same time. It *has* to look cutting edge and "Japanese".
2.) Japanese-wanted games made by Japanese developers: Signing Mistwalker for 2 possibly quality RPG's is a good start. Then you've got many western RPG's coming over as well. They need to sign 2 or 3 more new RPG's exclusively for Xenon. In the first 18 months, they need at least 1 decent/good RPG every 3 months. That's not an exaggeration. They also need Winning Eleven online (with leagues and completely player controlled games) and a few quirky Japanese games that would never come to the states. I think Microsoft's best move would be to partner with Konami or Capcom for several exclusive titles. I think buying out Capcom entirely (although drastic) would be the wisest move possible and following it up with building close ties to the other main developers would help tremendously. Getting Square on board with 1 RPG, even if it's an MMORPG would be tremendous as well. Tecmo, Sega, and From Software are already pretty strong supporters and that's a good start.
IMO, Microsoft is going to be just fine in Japan this generation. They're going to surprise alot of people.
