Sushil, bronze medallist in Beijing four years ago, lost 1-4 to the Japanese wrestler and had to settle for silver at the ExCel Arena.
However, the Indian grappler has created history by becoming the first Indian to win back-to-back individual Olympic medals.
Silver medallist India's Sushil Kumar with gold medallist Japan's Tatsuhiro Yonemitsu and bronze medallists Kazakhstan's Akzhurek Tanatarov and Cuba's Livan Lopez Azcuy pose on the podium. Photo: AFP
Earlier Sushil defeated edged out Kazakhstan's Akzhurek Tanatarov 9-6 in a thrilling semifinal. Tanatarov seemed the likely winner in the third and final period before Sushil fought back through grit and experience.
With the Kazakh leading 3-0, Sushil came up with brilliant moves to leave Tanatarov reeling on the mat. The contest ended with the Indian winning the period 6-3 and his opponent bleeding from the right ear.
Sushil had won the first period 3-0 and Kazakh levelled the fight in the second.
Earlier, the 2010 World Champion muscled his way into the last four beating Ikhtiyor Navruzov of Uzbekistan 3-1.
The Indian could have wrapped up the fight in period 2 but Navruzov turned the tables on him with six seconds remaining.
Sushil got the measure of his opponent in period 3, winning it 2-0 to seal the contest.
The 29-year-old started the day in a scintillating fashion, dismissing the Beijing gold medallist, Ramazan Sahin, in the opening round.