New Zealand were two goals to the good inside the opening quarter-hour and threatening a major boilover against the Group A seeds, only for the home favourites to storm back into the match with goals in each half from Yoko Tanaka and Ayaka Michigami.
The Junior Football Ferns went ahead on 11 minutes when the strong presence of striker Hannah Wilkinson caused havoc in the penalty area following a corner, forcing Ayu Nakada to bundle the ball over her own goalline.
Four minutes later New Zealand ace striker Rosie White scored her second goal in as many matches after controlled the ball with her chest, turning in the box and firing home with her left foot.
Japan were rocked and took some time to recover from the early setback, only to regroup and create countless goalscoring opportunities.
They pulled a goal back eight minutes before the interval with Tanaka robbing a defender and hitting a deflected shot into the net.
Japan finally got their equaliser on 71 minutes and surprisingly it was a corner that undid the Kiwi rearguard.
Michigami nodded home a smart header to the joy of the buoyant home crowd, while New Zealand somehow survived a goalmouth scramble in the latter stages with the ball cleared off the line as home side appeals were waved away.
“We have not showed our gifted techniques fully yet," said Japan coach Hiroshi Yoshida. "Today we showed our technical football to some extent, but that was not enough to win the match."