Striker Michael Owen poached his 25th goal for England in the 22nd minute, but midfielder Shinji Ono deservedly levelled in the 53rd as part of a convincing second-half display by the Japanese.
England coach Sven-Goran Eriksson appeared to end doubts over who would be his first choice for the defensive role in midfield at Euro 2004 by selecting Frank Lampard ahead of Nicky Butt.
Whatever the tactics, however, Eriksson clearly needs England to move up a few gears on their display at the City of Manchester stadium, where Japan looked by far the sharper and more fluid side.
England started well and showed plenty of enthusiasm, but were not helped by a flat performance from Owen's strike partner Wayne Rooney and some wayward shooting from Paul Scholes.
England gradually faded as the game wore on, leaving Eriksson with plenty of food for thought before Saturday's final friendly here against Iceland, let alone their Euro 2004 opener on June 13 against holders France.
SIMPLE TAP-IN
John Terry thought he had scored after four minutes when the defender met David Beckham's corner with a header which keeper Seigo Narazaki could only parry and was hacked off the line.
There was no mistake in the 22nd minute, though, when Narazaki spilled Steven Gerrard's fierce low drive and Owen, collecting his 55th England cap, followed through for a simple tap-in.
Japan responded with two fierce shots from distance by Keiji Tamada and Shumsuke Nakamura which David James blocked but a much better chance was squandered when captain Tsuneyasu Miyamoto headed wide from a corner.
Japan, who are preparing for a 2006 World Cup qualifier against India on June 9, were slick going forward and only Ashley Cole's outstretched boot stopped a fierce close range-shot from Tamada after a well-worked break.
Zico's side finally got their reward eight minutes into the second half when Alessandro Santos's cut-back into the path Ono was drilled home first time.
Japan kept up the pressure as England appeared to tire and James saw a sizzling drive from Nakamura fly across the goal, just wide of the far post.
A late injury to right back Gary Neville, which prompted his replacement by his brother Phil, was later said by Eriksson not to be serious.
