The Socceroos have bowed out of the Asian Cup at the quarter-final stage, beaten by defending champions Japan 4-3 on penalties at My Dinh National Stadium.

Japan goalkeeper Yoshikatsu Kawaguchi saved the opening two penalties from Harry Kewell and Lucas Neill to give his side the advantage and Yuji Nakazawa banged home the final penalty to seal the win.

With Australia reduced to 10 men from the 75th minute after Vince Grella was sent off for illegally using his arm on Japanese striker Naohiro Takahara, the scores were locked 1-1 after 120 minutes.

The Japanese had the better of the match and several chances to win it but failed to take them.

Japan will now play the winner of Sunday's Saudi Arabia versus Uzbekistan match in a semi-final in Hanoi on Wednesday, while the Socceroos are eliminated.

Coach Graham Arnold, who is now likely to be replaced by a big name overseas coach ahead of Australia's 2010 World Cup campaign, said he was proud of the squad's effort.

He said they'd learned about Asian soccer and it was clear Australia would have a difficult job to qualify through Asia for World Cups.

"The whole of Australia should be very proud of this team, but this has shown the road ahead is going to be very difficult," Arnold said of his side's first foray into top-level Asian competition.

"In these conditions, to play with 10 men was murder."

After weathering heavy pressure from Japan from late in the first half and through much of the second, the Socceroos scored the opener when John Aloisi banged home from close range in the 69th minute as a Kewell corner found its way through a forest of legs in the penalty area.

But the Japanese were back level three minutes later when Australia's Mark Milligan failed to clear a ball in his box and striker Naohiro Takahara gathered the ball, turned him and shot home off the post.

With no resolution inside 90 minutes, the match went to 30 minutes extra-time with Japan looking far more likely to score but not managing to do so.

A combination of desperate Australian defending, goalkeeper Mark Schwarzer's intervention and some poor Japanese shooting in extra-time conspired to send the match to penalties.

Both Nakazawa and Hisato Sato had golden opportunities to win the match in the second period of extra-time - Nakazawa's goalbound header from a corner stopped by Jason Culina's header off the line.

Then Sato fluffed his left-foot shot when bearing down on goal when he should have done better.

Australia then had a remarkable Schwarzer save from Shunsuke Nakamura with a minute left of extra-time to send the match into penalties.

Schwarzer somehow stopped Nakamura's point-blank range shot to keep his side alive, then a goalmouth scramble just seconds late also went in Australia's favour.

But Japan's goalkeeper Kawaguchi came up with two fine saves to give his side the advantage in the shootout and ensure they would avenge their World Cup loss to Australia last year.

Despite a nervous moment when Takahara blasted the fourth penalty over the bar, Nakazawa kept his nerve to settle the match.

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