The Japanese Olympic Committee revoked four players' accreditation after they were found to have spent the night with women in a Jakarta hotel.
The remain eight members of the squad had pulled off an emotional win over Hong Kong to reach the quarter-finals last Wednesday but found Iran a bridge too far.
Unable to train five-on-five in the leadup to Monday's game, or frequently rotate players in an out of the match-up, eventually took its toll.
“Always, if you have four less players then it is tough, to play with only eight players,” said Japan coach Herman Mandole.
“Those four players made a big mistake and I accept the rules. That is not an excuse to not compete and not play tough.”
Mandole said his team played well under the circumstances.
“We are eight players and since one week ago we haven’t had the possibility of practicing five-on-five,” said the Argentine.
“In this scenario, this game was good because my players gave 100 percent, all the time. We competed for 35 minutes but the other five minutes they are better than us.”
Iran will face South Korea in the semi-finals on Thursday after their 91-82 victory over the Philippines, who had 25 points from Cleveland Cavaliers point guard Jordan Clarkson.
Clarkson had been cleared to play at the Asian Games by the NBA and made his national team debut earlier in the competition.
(Editing by Peter Rutherford)
