A quick listing of the challenges facing the phone:

The downsides for users everywhere

• The camera specs are mediocre. 5 megapixels is popping up a lot in mobiles in Japan (though it's by no means universal; the iPhone still has plenty of 2-megapixel company)
• The battery isn't swappable. (Note: the iPhone 3G is sporting visible screws on the bottom, a rarity for an Apple product; is that a sign that a battery swap will at least be an easy job for a phone shop?)
• No removable media

The downsides more specific to Japan

• No One-seg TV tuner
• No Felica e-wallet function

Market challenges

• Everyone in Japan has a cell phone; the cost to switch can be high
• Many also have iPods with photo/video functions
• Mobile music/video download services are well-established here

Wireless Watch notes that many Japanese are buying one simple mobile for calls and email, and a second high-end model for video, photos, gaming, etc. The iPhone is such a high-end phone, and it offers some great features in that niche - but as noted above, it's missing some features users will expect from a high-end phone.
http://www.japaninc.com/ww175

Standout features

• Interface. It's a single bullet point, but a big one. Will users here go nuts over that touch-enabled goodness?
• iPod / PDA. Yes, cell phones in Japan have music/video players and web browsers, but the iPhone promises to blow those away.  
• The iPhone App store. DoCoMo's iAppli applets and the like are familiar to users here; will polished, big-screen applications from the App Store become the talk of Japan?
• Integration with computers. There are plenty of software packages in Japan for syncing cell phones with PCs; time will show whether the iPhone's approach is considered better.

The questions:

• How good is the Japanese input system? Will it delight or frustrate users? ("Good, but different" may not be ideal.)
• Will other partners come on board?

As Wireless Watch notes, Apple's partner Softbank Mobile commands less than 20% of the market. Apple still needs DoCoMo to reach the masses - though it's worth noting that switching carriers (from DoCoMo to Softbank) is easier than ever, thanks to the number portability system that lets users keep their old number.

More to come

What do you think of the iPhone 3G's future in Japan? Be heard in the poll and comments!