Because the Nobel committee felt his writing expressed "universal human conditions".
According to the official Nobel Prize website:
The Nobel Prize in Literature 1978 was awarded to Isaac Bashevis Singer "for his impassioned narrative art which, with roots in a Polish-Jewish cultural tradition, brings universal human conditions to life".
I believe he translated at least some of his works into English himself:
In most cases, Singer published a story in the Yiddish press, and then used tear sheets or clippings to translate it into English.
From The New Yorker
The Smithsonian implies that he did it himself, but sometimes with the help of editors:
He published them first in Yiddish ...
I think there were several factors here, though of course we don't know all of them.
Not really niche
Firstly, I'd like to address the point of audience. While you say
The audience of his brilliant books are Jews, old Jews, Judeophiles and maybe 1% just randoms
In fact, he also wrote English translations of a lot of his works which were of course ...