The 21-year-old, who sealed her maiden title win at the event last year, went down 6-4 6-4 to her Puerto Rican opponent as her disappointing year continued in Osaka.
Watson, ranked 92nd in the world, has now lost 19 of her last 30 singles matches.
The Briton suffered from glandular fever earlier in the year and has since stuttered to first-round exits at the French Open, Wimbledon and US Open.
Watson moved up to 39 in the world rankings earlier this year but her poor recent form has seen her slip down to 92nd.
British No1 Laura Robson is due to take on Japanese 43-year-old Kimiko Date-Krumm in her opening match on Tuesday.
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