Despite some impressive work at the net from Britain's Lynne Beattie and Ciara Michel, the far more experienced Japanese team, ranked fifth in the world versus a British side ranked 69th, took the match in three straight sets 25-19, 25-14, 25-12, with Britain never really posing a threat.
Japanese coach Masayoshi Manabe praised an improving British team at their first top flight international competition and British captain Beattie said she felt the team had met expectations by taking a win off 16th ranked Algeria in GB's second match and putting up a fight against Japan.
"We go away from this tournament feeling like we can stick with the best teams in the world," Beattie told reporters after the match.
Ninth-ranked Russia narrowly defeated fourth-ranked Italy in a see-saw battle for the top of pool A which went to the fifth set. Russia pulled ahead late in the last set to win 15-11. Top scorer Nataliya Gonchorova delivered 33 points over the entire five sets in a match which started with a loss in the first set.
Debut Russian coach Serguey Ovchinnikov told Reuters he delivered firm instructions to his side after the opening set.
"When we lost the first set, we had some problems with our attack," Ovchinnikov` said. "I told them you need to correct your mistakes."
Algeria slid out of the tournament earlier on Sunday after losing three straight sets to 11th ranked Dominican Republic, who advance to the quarter finals of pool A along with Russia, Italy and Japan.
Each point for the hosts received a rousing cheer from the home fans and the team, which stunned volleyball fans with a win in a tournament where they were not expected to take a set, held up a handmade thank you message to the fans who have howled their support and stomped their feet for them at every match.
The US women's volleyball team cruised to victory in three straight sets against Turkey on Sunday, closing out the preliminary round of the London Olympics tournament undefeated at the top of Pool B.
Turkey sails out of the competition alongside Britain, Algeria and Serbia after China and Korea went to five sets earlier in the day, giving them both enough points to earn a spot in the knockout round of the quarter-finals.
Turkey played a blinding first set before losing 27-25, and forcing the United States to shore up their defence and raise their game.
"Obviously in the first set Turkey had a lot of success," US coach Hugh McCutcheon told Reuters. "Once we blocked our defence and our reception grooved in a little bit that made things easier."
The world number one team's Destinee Hooker blasted 17 spikes out of 38 attempts, delivered 19 points and had some strong help up front at the net from Foluke Akinradewo to win the last two sets 25-16 and 25-19.
The US women's team have never won gold at the Olympics, with silver their best result at Los Angeles in 1984 and in Beijing in 2008.
Russia will play Brazil in the quarter-finals followed by Japan against China, Italy against Korea and the United States against Dominican Republic on Tuesday.
While the Americans wrapped up their Group B campaign with an unblemished 5-0 record, the Russians did the same in Group A thanks to a 3-2 win over Italy.
Earlier on Sunday, China squeaked past South Korea three sets to two.