Iwabuchi, who was on the Japanese team that won the World Cup in 2011, scored in the 23rd minute to give Japan its first goal of the tournament. Yuika Sugasawa converted a penalty in the 37th minute to pad the lead going into the break.
Lana Clelland's left-footed shot went into the top right corner of the net in the 87th minute as Scotland furiously worked to break through Japan's defense.
Scotland has now dropped both of its matches so far in France, after opening with a 2-1 loss to England. The team will play Argentina in its group-stage final.