"At 2-0 up we felt there were some chances for us but it was psychologically hard for us," said Manchester United star Kagawa after Japan had raced out of the blocks seeking a first ever win over the Azzurri before eventually losing 4-3.
"Finally we had the late blow of their winner and so we are sad. But Italy seized the chances they had and that was the difference," said the man of the match.
"For my goal I swivelled and hit it with my left foot. I was in the right place and I was in luck to score."
But a later effort that he should have put away hit the woodwork and with Maya Yoshida having an effort ruled out at the death it made for a painful exit which makes Japan's remaining pool encounter with Mexico at the weekend academic.
"It just feels so much worse after we played in many ways such a good game," said midfield general Keisuke Honda after the reverse to the four times world champions.
For 40 minutes the Asian champions had Italy on the rack but the Samurai Blue lacked a ruthless streak as they let slip a two-goal lead and saw their hopes of reaching the semi-finals evaporate.
Asked if there were not positives to take from a tremendous first half effort when last Saturday's insipid showing against Brazil was forgotten, Honda looked aghast at the suggestion.
"No, it feels pretty negative to me. For us, the tournament is over," the dynamo said.
With skipper Makoto Hasebe picking up another yellow he will miss the final group match.
Japan's Italian coach Alberto Zaccheroni said he took heart from a much more aggressive showing than that against Brazil, which had frustrated him.
"I was cautious to see how they would react after the Brazil game. Even though we lost we played well. But we have to acknowledge that Italy are better than we are at making more use of their opportunities."