The Young Socceroos have been edged out 1-0 by Japan in their opening match at the SBS Cup in Shizuoka on Thursday.
Taisei Miyashiro capitalised on an unfortunate Noah Pagden slip to score what proved the winner in the 26th minute.
The narrow defeat came despite the presence of Hyundai A-League experience, with Perth Glory playmaker Jacob Italiano, Brisbane Roar winger Rahmat Akbari and Melbourne City full-back Dylan Pierias named among the starting XI.
Australia did have claims for a penalty waved away in the first half, while Kai Trewin went close with a header after the interval.
In the end, Miyashiro's unerring low finish was all that split the teams, leaving Ante Milicic's side searching for a quick response against Paraguay at 7:30pm (AEST) on Friday.
The group - all of whom are 18 or younger - then round off the four-team tournament with a clash against a Shizuoka Selection Team on Sunday.
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