Reasons for Switch to dominate Japan:
-Historically, for two generations now, Nintendo has dominated Japan
-Switch is fully portable. Historically, portables have dominated Japan
-Switch will inherit Nintendo's 3DS and Wii U support. It will have all the Pokemon, all the Mario Kart, all the 2D Mario, all the Splatoon, etc.
-PS4 has not set Japan on fire and looks to approach PS3 sales rather than PS2 sales in that country
-Vita looks unlikely to have a successor.
Reasons why Switch might not dominate Japan:
-Mobile is more mature than it was at the launch of 3DS. Nintendo very much needs to prove that an install base 0, catalog minimal handheld can find a path to success in the new mobile environment.
-Feeding into this concerns are concerns about its particular portable profile, i.e. concerns about battery life, size, etc.
This is also, and here's where we get to this thread, a unique opportunity for Nintendo. They can put out a system that dominates Japan and can accept PS2 PlayStation legacy support. No longer is the Nintendo handheld a system that is awkward to port to from the Japanese system that does best worldwide. This is a huge opportunity to Japanese third parties interested in greater domestic sales. Suddenly, doing DQXI is very much within reach. It is a smaller opportunity for deeply niche products, like many Vita games, and more ambitious products, like FFXV. It is a big opportunity for medium sized games in the Japanese market.
Now, why is this in particular so big a chance for Nintendo? Because under Iwata Nintendo pivoted away from the western strategies that buoyed N64 and started trying to win back Japan. They went Wii/DS trying to reopen the Japanese frontier, abandoning NOA plans to put out a GCN more like OG XBox. Nintendo has boxed themselves into a corner where Japan is the lowest hanging fruit and they finally have a device that could win back Japanese development support. They need to leverage as much support as they can to keep Japan humming as long as possible and to reach out to the rest of the world.
Now, why is this not particularly damaging or threatening to Sony? Firstly, Switch is not going to replace PS4 as the go-to console to have your game out world-wide. Secondly, Switch is going to encourage multiplatforn, insofar as it succeeds in Japan, not Switch exclusivity. Said multiplatform could even benefit Sony. Suddenly, say SMTV is releasing on a system in porting distance of PS4. Why not put it on PS4 too?
Edit: Moreover, if the Switch starts rolling and it gathers support, the reasons for it to dominate multiply. We can also hope that Nintendo has learned a bit about gathering companions as opposed to leading by example, or that Japanese companies see the opportunity themselves and are willing to fight for it.