Hiroko Shimizu, 63, filed the case demanding education authorities in Osaka retract the punitive measure taken after she ignored an all-rise order for the national anthem during a 2013 graduation ceremony.
But Osaka District Court presiding judge Hiroyuki Naito on Wednesday turned down her demand, ruling the pay cut was appropriate, a court spokesman said.
The order to stand for the singing of the anthem was not aimed at forcing participants to follow any ideology, Naito told the court, according to Jiji Press.
Rather, it was to ensure that ‘the ceremony proceeded smoothly and order was maintained,’ he said.
The judge said Shimizu ‘put her own sense of values before the maintenance of civil servant discipline.’
Shimizu immediately appealed to a higher court, Jiji said.
Critics say the song, a paean to the emperor, amounts to a call to self-sacrifice on his behalf and celebrates past militarism in which soldiers went to war in their ruler's name.
Numerous teachers have clashed with school administrators in recent years over the issue, and current nationalist Prime Minister Shinzo Abe is accused of trying to play down Japan's World War II history.
Court decisions have been divided.
In 2012, the supreme court ruled that penalising teachers for not standing to sing the anthem was constitutional, but it warned administrators to exercise care in going beyond a reprimand.
But last year, the Tokyo District Court awarded millions of dollars in compensation to a group of teachers who were punished for refusing to sing the song.
Abe told parliament last year that raising the national flag and standing to sing the anthem at school ceremonies should be done not only in elementary and secondary institutions, but also public universities.
