MS first party got dogged by gamers because of the whole "Halo/Gears/Forza ad nauseum" policy they took starting late-360... when in previous times they were pushing a much more diverse (quality notwithstanding) lineup. This most recent gen, they're buying up a lot of studios to expand their first party output - and with the exception of Bethesda, these are studios that are kinda niche (Obsidian, Ninja Theory). So this seems like the time where Sony would want to bolster their lineup diversity as much as possible instead of counterintuitively doubling down on "angry dad cinematic wankfests".
Sony's disinterest in the Japanese market is disheartening, as I've always felt that a strong Sony = strong Japanese 3rd party game titles (even if PS4 just barely came shy of PS3's lifetime sales in Japan, its success in the rest of the world created a thriving ecosystem for Japanese devs, and the PS4 gen was much stronger for them overall than the PS3 gen [though this is also for a myriad of other reasons]).
They could have had JapanStudios make a new Legend of Dragoon. Anything really. JRPGs and Japanese games in general are not unpopular. Maybe not 6 million unit sellers. But there is a market for Japanese games that probably skew older. You have stuff like Nier Automata do good. It’s possible. I don’t think most people want LocoRoco.
But I guess one of the problems was that JapanStudio did not want to make games with a worldwide focus.
I'd argue they're at their most popular in the west than they've ever been. Atelier, Nier, Persona, Fire Emblem - all have broken sales records in the west - in the PS2 and early PS3 era most people would consider these games niche as hell. Hell, even SE just reported lifetime sales of 2.5 mil for Octopath.