It could do much worse but I doubt it would be remotely profitable either way.
Pretty sure this is aimed westward (given where Xenoblade really took off) more than Japan. Seems the title will meet or come close to Xenoblade Chronicles which, given a considerably lower install base on the WiiU, is not a bad result.
Nintendo was likely more than prepared for this for years now and they still let them do what they wanted to do with the title. They'll lose money but, given the Iwata Asks, I think they were ready for it and still let Monolith have fun with their project and make it as they saw fit.
Do they move them to smaller projects given they might not have a better selling console in the future or soldier on as an example of hardware competence and genre diversity? Hard to say.
Since they're not an external developer they have to do something instead of the easy throwing off a cliff option.
It's also not a situation like Retro and Donkey Kong where they have other known competencies and 20 other sidescrolling platformers to make up for taking one out of rotation, but again who wants to make games thinking they will keep losing money assuming it doesn't have some standout Western performance.
Monolith is a diversity move for their library, I would say. And their next move is likely going to be on the NX/handheld platform. They're already scripted for the cross over X-zone project. Wasn't Retro's take on DK partly because the studio wanted to do something new and partly to try and capitalize on the success of the Wii DK? I wouldn't be surprised if we saw something similar with Monolith.
We're likely to see this get positioned as a strong holiday title for the WiiU in the west by the time the localization gets finished. Captain Toad experienced a rather sizable boost from the holidays (even if its a spin-off Mario game). I don't think Xenoblade X is going to perform anywhere near Bayonetta 2.