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Inoue retained his undisputed super bantamweight titles and handed Nakatani the first loss of his career.
The bout had been billed as one of the biggest in Japanese boxing history, bringing together two unbeaten fighters with identical 32-0 records at the famous venue.
It did not disappoint, with Inoue seeing off a spirited challenge from rangy southpaw Nakatani to keep his crown as the undisputed king of Japanese boxing.
"I just wanted to show everyone that I could win this fight," the 33-year-old Inoue said.
"Nakatani is a very strong-willed fighter, someone who's always ranked among the world's top pound-for-pound fighters, and that gives this win extra significance."
Inoue took his record to 33-0, with 27 knockouts, after successfully defending his world titles for the seventh time.
He was meeting a dangerous opponent eight centimetres (three inches) taller and five years younger.
Nakatani used his longer reach to keep Inoue at bay in the early rounds, although the champion still managed to sneak in and land some punches.
Inoue's pinpoint accuracy and lightning reflexes saw him find the target more often, with Nakatani unable to respond in kind.
Nakatani began to find more success in the middle rounds but Inoue kept up his relentless attack and connected with a thundering straight shot in the seventh round.