The Indian team, mainly made up of junior players, squandered a goal lead to go down fighting against the Japanese, who rode on two field goals from Yasuhiro Nakayama to post their second straight win in the tournament.
Gurjinder Singh gave India the lead in the 12th minute by converting a penalty stroke before Nakayama drew parity in the 23rd minute.
Nakayama scored the winner for Japan in the 54th minute with another field strike to dash India's hopes.
The Manpreet Singh-led Indian team will Oman in their next match on Tuesday.