Paraguay won the first penalty shoot-out of the 2010 World Cup to reach the last eight for the first time and clinch a quarter-final place against either Spain or Portugal.
Coach Gerardo Martino's men scored all five of their penalties after a disappointing match had finished goalless at the end of extra-time.
But Paraguay's joy was Japan's agony as Yuichi Komano's spot-kick brushed the crossbar and flew over as the Blue Samurai's tournament came to an agonising end.
As with their opponents, Japan were bidding to reach the quarter-finals for the first time and came closest to scoring during a game of few chances when Daisuke Matsui smashed a long-range strike against the crossbar in the first half.
Japan coach Takeshi Okada had targeted a semi-final place before the tournament. But, in a game during which neither side really gambled on scoring a winner, it is Okada's team that ultimately paid for their lack of ambition.
Their defeat ended Asia's participation in the tournament, but Tuesday's result in Pretoria ensured that there will be four South American sides in the last eight.
Martin's Paraguay have conceded only once in their four games in South Africa and were defensively solid against a Japan team that had previously looked dangerous on the counter attack.
Okada's men aimed two long-distance strikes towards the Paraguay goal in the opening minutes but the tie soon deteriorated into a scrappy, edgy contest.
The Blue Samurai, unchanged for their fourth straight World Cup match, sat deep and attempted to snuff out the opposition, while their opponents conceded a series of niggling fouls every time Japan looked to strike on the counter.
There was one scintillating minute in an otherwise forgettable opening half.
It started when a deft turn from Lucas Barrios briefly left two Japan defenders foundering but his strike with the outside of his right boot was saved.
Seconds later Matsui, whose impressive tournament had a disappointing end when he was withdrawn shortly after the restart, crashed his long-range effort against Paraguay goalkeeper Justo Villar's crossbar.
Matsui later turned provider for Honda, who opted to strike first time but missed from 20 yards when he clearly had the space to take an initial touch.
Roque Santa Cruz, deployed on the right by Martino, ought to have tested Japan keeper Eiji Kawashima after a corner dropped invitingly but the striker missed from close to the penalty spot as a largely soporific half ended goalless.
There was not much of an upsurge in entertainment after the restart.
Yuji Nakazawa blocked an Edgar Benitez strike and Sunderland-bound Christian Riveros headed wide after a superb near-post run.
A Yuto Nagatomo strike took a deflection off Carlos Bonet, while one effort from the unfortunate right-back Komano spoke volumes about the lack of attacking quality at vital moments.
Komano found an advanced position but his shot from a wide angle was so far wide that the subsequent throw-in took place almost 18 yards from the byeline.
Neither team had been able to mount a sustained spell of pressure but Paraguay did enjoy a brief period in the ascendancy shortly after the start of extra-time.
Kawashima saved a disappointing header from Barrios, who was unmarked, and smothered a shot from substitute Nelson Valdez after his sharp turn finally picked a hole in the Japan defence.
Villar saved a low strike from Honda that appeared to be going wide and there was one moment when there appeared to be space inside the Paraguay box but any prospects of Japan capitalising were undermined by an awful cross from substitute Keiji Tamada.
There was a certain inevitability about the penalty shoot-out that eventually took place. Neither keeper came particularly close to making a save but Komano's miss proved decisive.
Attempts on target
Attempts off target
Projected table based on current scores
|Group A teams||P||W||D||L||F||A||GD||PTS|
|Group B teams||P||W||D||L||F||A||GD||PTS|
|Group C teams||P||W||D||L||F||A||GD||PTS|
|Group D teams||P||W||D||L||F||A||GD||PTS|
|Group E teams||P||W||D||L||F||A||GD||PTS|
|Group F teams||P||W||D||L||F||A||GD||PTS|
|Group G teams||P||W||D||L||F||A||GD||PTS|