UPDATE 3-Microsoft to slash Xbox 360 price in Japan

(Recasts with announcement)

By Sachi Izumi

TOKYO, Sept 1 (Reuters) - Microsoft Corp (MSFT.O) said it will slash the price of its Xbox 360 game consoles in Japan by up to 29 percent, below Nintendo Co's (7974.OS) Wii and Sony Corp's (6758.T) PlayStation 3, in a bid to jump-start its sluggish sales.

Demand for the Xbox 360 has been tepid in Japan, mainly due to a lack of popular games. In contrast, the market-leading Wii is thriving on a range of innovative software, prompting Nintendo to raise its earning forecast on Friday. [ID:nT97826]

"It has not gone entirely smoothly," Takashi Sensui, general manager of Microsoft's home and entertainment division in Japan, said of the Xbox's performance since its launch three years ago.

"There are some analysts who say they are waiting for the next generation of the Xbox," he said, adding that Microsoft took a different view. "We will keep trying to be at the centre of the storm in the Japanese market."

But analysts said that to compete successfully, lower prices were not enough and Microsoft would need to launch blockbuster games to rival the Wii.

Microsoft will cut the price of the Xbox 360 Arcade, which comes without a hard drive and is the cheapest of the three Xbox 360 models, by 8,000 yen ($73.92) to 19,800 yen from Sept. 11.

That would make the Arcade cheaper than Nintendo's Wii, which sells for about 25,000 yen, and the PlayStation 3, which sells for 39,800 yen.

Microsoft will also cut the price of the high-end Elite model by 8,000 yen to 39,800 yen. It will upgrade the standard model's hard-disk drive to 60 gigabyte from previously 20 gigabyte, and sell it for 29,800 yen.

Before the upgrade, that model sold for 34,800 yen.

BETTER GAMES

Microsoft has already cut the price of the Xbox 360 in the United States, Europe and four Asian markets as it tries to bite off a larger chunk of the $57 billion game industry. In Europe, the Xbox 360 Arcade costs less than the Wii.

KBC Securities analyst Hiroshi Kamide said price cuts alone are unlikely to trigger a jump in demand for the Xbox 360 and Microsoft needs to focus more on producing attractive software.

"Popular software is now serving as a tail wind to Xbox sales," he said.

"Even if they slash the console price, that would not directly boost sales unless they release more good software," he added.

Robust demand for Namco Bandai Holdings' (7832.T) "Tales of Vesperia" role-playing game helped Xbox 360 sales in Japan beat the PS3 for the first time in the week ended Aug. 10. [ID:nT236852]

The Wii's success has been attributed to inventive titles such as the "Wii Fit" exercise game, its low price and its easy-to-learn motion-sensing controller.

The Wii has sold 6.67 million units so far in Japan, nearly triple the PS3's 2.32 million, according to game magazine publisher Enterbrain. The Xbox has sold only 684,695 units even though it was launched about a year earlier in December 2005.

Microsoft also announced on Monday it would launch Xbox-exclusive action game "Ninja Blade", developed by FromSoftware Inc, in early 2009.

Sony shares fell 2.4 percent to close at 4,140 yen after a local newspaper reported the price cut in the morning. Nintendo gained 3.7 percent to 53,700 yen, propelled by the outlook revision. The Nikkei average .N225 was down 1.8 percent.

Shares in Microsoft were down 2.3 percent at $27.29 as of 0856 GMT. (Additional reporting by Nathan Layne; Editing by Sophie Hardach)