But Japan is one of the world’s largest and most demanding mobile phone markets. Perhaps even a bit too demanding for the iPhone. According to market-research firm MM Research Institute, Apple (AAPL) sold just 200,000 iPhones in Japan in the device’s first two months on the market.

And now demand is declining. So much so that analysts say sales are unlikely to top 500,000 units, let alone two million. The reason: The iPhone, even with its multi-touch screen and elegant design, pales a bit in comparison to the typical Japanese handset, which boasts not just a high-end color display, but a video camera, GPS and digital TV and electronic currency support as well. Said MM Research analyst Eimei Yokota, “The iPhone is a difficult phone to use for the Japanese market because there are so many features it doesn’t have.”