Nintendo slashed the price of the 3DS by about 40 percent in August and announced a flood of new software, including titles in the much loved Mario series, in a bid to prop up sales of the gadget, which had slumped soon after its February launch.
As a result, the Kyoto-based firm expects to sell 4 million of the machines in Japan within the first year, compared with a worldwide target of 16 million units by March 2012.
"It has regained its momentum," President Satoru Iwata told the Nikkei business daily in an interview, the content of which was confirmed by a company spokesman.
But slashing the price was a painful step for the games giant, resulting in losses on each 3DS unit it sells.
"Even though the penetration rate will grow this year, they are bleeding money and therefore overall from an earnings perspective we are not too optimistic," said Nanako Imazu, an analyst at CLSA in Tokyo, who forecasts full-year sales of 15 million units, due to economic woes in North America and Europe.
In the United States, Nintendo's largest single market, the year-end gift-buying rush appears to be starting about two weeks later than usual, Iwata said, but added that sales of new Mario software had started off stronger than in Japan.
Last week Reggie Fils-Aime, president of Nintendo America had told a Reuters Summit he was focusing on maintaining the momentum after a strong showing on Black Friday, which traditionally kicks off the holiday shopping season in the United States.
The Wii home console sold 500,000 units on Black Friday, Fils-Aime said, while Microsoft said it sold 960,000 Xbox consoles in the week of Black Friday, its best week of sales ever.
But a survey published this week showed 38 percent of U.S. consumers had already completed their holiday shopping by the first weekend of December, boding ill for consumer technology firms at what is normally their most lucrative time.
In the six months to September, Nintendo made about 34 percent of its sales in the Americas and 37 percent in Europe, meaning it was hit particularly hard by the yen's rise against both the dollar and euro.
That, along with the price cut, was one of the reasons why the company slashed its forecast to a 20 billion yen net loss for the year to March 2012. Nintendo has begun a small amount of euro-based procurement to try to offset foreign exchange losses, the spokesman said.
Shares in Nintendo rose 0.6 percent to 11,190 yen on Wednesday, compared with a 0.8 percent rise in the Nikkei average. The company has lost about half its market value since the beginning of the year.
(Reporting by Isabel Reynolds; Editing by Joseph Radford)