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That's how its supposed to work, the internal memory its partitioned.
You need a lot more free memory to be able to update and/or install apps, usually 500MB, what you could do is settings > memory > clear cache > check again.
I had other Xperias with limited internal storage and if I'm under 500MB I can't update nor install any app, even if the app its few MB.
Indeed, you have the Xperia J, so it will be
settings > storage > Device memory > total space (this is for apps)
Internal storage, this will be for music, videos, pictures.