Spain deserved more hammering as their passing rythm failed to click and things got even worse when Inigo Martinez was sent off for bringing down Kensuke Nagai during the first half.
It was the first time Japan beat the World and European champions. This upset is the repeat of the 1996 Olympics games in Atlanta when the mighty Brazil were beaten by Japan.
Poor defending cost them in the 34th minute when Takahiro Oghihara swung in a curling ball from the corner which was met by Otsu off Martin Montoya and slammed a low shot past Manchester United goalkeeper David De Gea.
It got even worse for La Roja when Martinez was shown red for a tackle on Nagai just outside the box. The first half ended with Spain going down by a goal and a man.
The Reds continued to dominate possession but were blank in front goal, lacking creativity and looked shaky in defence. Japan could have won comfortably but Nagai and Hotaru Yamaguchi missed golden opportunities.
At stoppage time, De Gea denied Nagai when everyone expected him to finish in a one-on-one situation while Yagamuchi blazed a shot high and wide.
The reigning champions got a taste of their own medicine and despite showing their dominance and style, the Japanese got the better of them.