The dramatic turnaround set up a tense final day.
Outteridge and Artemis Racing appeared to be firmly in the driving seat, needing just one more win to progress into the final.
But the wind up around 19-22 knots - the same conditions in which we saw carnage on the Great Sound on Wednesday - appeared to favour the Japanese team, who had excelled in the challenging conditions.
Team Japan had an issue on board in the lead-up to the race, after appearing to collide with some debris on the Great Sound. The collision sent the Japanese crew sprawling, but they recovered from the incident, getting the better of the Swedes in the start.
A mistake on the first beat saw Japan surrender their lead, and effectively seal their campaign's fate.
Outteridge, who did not look comfortable in the wild conditions earlier this week, sailed courageously around the track to pull off the win.
Artemis' triumph today is in direct contrast to their 2013 campaign, which was marred by the tragic death of grinder Andrew 'Bart' Simpson, in a training accident leading up to the event.
Barker said despite the early exit, he was proud of how far his team have come in the two years since they set up shop. Team Japan, who were given a leg up into the event by Oracle, were seeking to make history by securing their place in a challenger final for the first time.
"We're very, very proud of what this team has achieved in the short time frame," said Barker.
"I'm disappointed we're not going through to the final. Obviously we will reflect back on the mistakes, but we're proud of what we have achieved."