IS claimed in a video released online that it had killed 47-year-old journalist Kenji Goto, the second purported beheading of a Japanese hostage in a week but made no mention of the Jordanian pilot it had also threatened to kill.
Japanese Prime Minster Shinzo Abe condemned the "heinous and despicable terrorist acts" and said that "Japan will never yield to terrorism."
"We will never forgive terrorists. We will cooperate with the international community to make them atone for their crimes," Abe told reporters in Tokyo, appearing to fight back tears as he spoke.
IS has been demanding the release of an Iraqi jihadist on death row in Jordan in exchange for Kassasbeh's life, and Amman said it would hand her over if given proof he is still alive.
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The video shows Goto, a respected war correspondent, wearing an orange outfit similar to those worn by Guantanamo Bay inmates, kneeling next to a standing man dressed head-to-toe in black with his face covered.
He addresses Abe, saying the killing was the result of Tokyo's "reckless" decisions, a possible reference to aid it has granted for refugees fleeing IS-controlled areas in Syria and Iraq and would mark the beginning of a "nightmare for Japan".
The brief video, whose content has not been verified but whose authenticity Tokyo said was "highly probable", ends with the image of a body and a decapitated head on top of it.
In a statement, Goto's wife Rinko said she was "devastated" at the news.