According to Japanese gaming bible Famitsu, Nintendo (NTDOY) 3DS sold 333,000 units in the week ending December 16, while Sony’s (SNE) PS Vita limped along at 13,000 units, the new Wii U did an okay 130,000 units and the PlayStation 3 managed to sell 46,000 units. The utter hardware domination of the 3DS is reshaping the Japanese software market. Franchises that were thought to be fading have been revitalized in their portable versions. The 3DS version of the ancient Animal Crossing series, famed for being the game where nothing happens, hit a staggering 1.7 million units last week in Japan. Inazuma Eleven sold 170,000 units in its launch week, up from 140,000 units its DS version managed in 2011.

Nintendo’s portable console 3DS had a muted start in its home market in the spring of 2011. Many thought that Sony would have a fair shot at competing with Nintendo once Playstation Vita launched at the end of 2011. But once Nintendo executed an aggressive price cut for 3DS in the summer of 2011 and then launched a large-screen version of the console in mid-2012, the gadget has grown into a Godzilla in Japan, demolishing both Sony Vita and aging tabletop console competition.

3DS is doing well also in America, where its lifetime sales are moving close to the 6 million unit mark this holiday season. According to NPD, the 3DS sales in the United States topped 500,000 units in November. That’s a decent number, though far from the torrid volume the portable is racking up in its home market. The U.S. November video game software chart was dominated by massive home console juggernauts: new installments of Call of Duty, Halo and Assassin’s Creed franchises shifted more than 13 million units in retail. At the same time, the Japanese software chart remains in a ’90s time warp, dominated by Nintendo’s musty masterpieces: Super Mario Brothers, Pokemon, Animal Crossing, etc.

Japanese and American tastes have always been different. But what we are witnessing now is a particularly fascinating divergence. American consumers are spending more of their time and money on smartphone and tablet games, while console game spending is increasingly focusing on massive, graphically stunning blockbuster titles on Xbox360 and PS3. The casual gamers are shifting to mobile games, while hardcore gamers remain attracted to sprawling epics on home consoles. The overall video game spending in America keeps declining month after month, as casual titles and mid-list games slide. But the Triple A whales like the Call of Duty series are doing better than ever.

In Japan, Nintendo has been able to battle back iPhone and Android game invasion with a nostalgic series of portable games that basically recycle the biggest hits of ’80s and early ’90s. Mario, Pokemons and other portable heroes are slowly losing their grip on U.S. and European consumers. But in Japan, some form of national nostalgia is keeping Nintendo on track.

The problem here is that the Japanese success of the 3DS may now be convincing Nintendo that it does not have to reconsider its business strategy. The smartphone and tablet game spending continues growing explosively across the world. Unlike console games, mobile game sales in China are legal. The global gaming spending is shifting towards new hardware platforms even as console mammoths like Halo still reign in America. At this critical juncture, Nintendo has managed to cocoon its home market in a web of nostalgia, turning the 3DS console and its Eighties left-over franchises into epic bestsellers yet again.

This means that there is no sense of urgency to push Nintendo into rethinking its long-term plans. The company may continue simply ignoring the smartphone and tablet challenge, designing new portable consoles and the 28th Mario game to support it. Twenty years ago, Japan’s insularity doomed its chances to succeed in the mobile phone business. And now the idiosyncratic nature of Japan may be leading its biggest entertainment industry success astray.