"It's the present," he said. "We proved we are a team that deserves this honor."
Captain Roberto Luis Trotta booted in a penalty kick to put Velez ahead 1-0 in the 50th minute after Milan defender Alessandro Costacurta fouled forward Omar Andres Asad in the box. Milan keeper Sebastiano Rossi then picked up a yellow card for bickering with the referee.
Asad came back with a goal of his own seven minutes later, intercepting a back pass Milan's Franco Baresi intended for goalie Rossi and slamming it into the net before nearly 48,000 spectators at Tokyo's National stadium.
"I can't believe we lost," said Milan coach Fabio Capello. "But the team that makes mistakes loses. That's soccer."
Velez, which had difficulty breaking Milan's control of the midfield, had only one serious shot on the goal in the first 45 minutes. Forwards Asad and Jose Oscar Flores, however, provided some excitement with dangerous breaks down the sides.
"Not very many of our players have experience in the big international games like this, so we were very nervous," said Asad. "But we got over that as the game went on." Milan tried to battle back after giving up the two second-half goals, but was unable to turn its several deftly created shooting opportunities into goals. Milan outshot Velez 11-6.
Thursday's loss was especially disappointing for Milan, which has almost made Tokyo a second home.
The Italians represented Europe in the cup for the fifth time last year, narrowly losing to Brazil's Sao Paulo. Milan has won the Intercontinental Cup, held here since 1980 as the Toyota Cup, three times -- in 1969, 1989 and 1990.
Milan established itself as one of the world's top teams under coach Arrigo Sacchi in 1988. Since then, the team has won, along with the two Intercontinental Cup titles, four league titles, three Champions Cups and two European SuperCups.
But it has been struggling through this season. Milan has already been eliminated from the Italian Cup and is on the brink of being knocked from the Champions League.
The young Argentinean team -- their starters' average age was 25 compared with 29 for Milan -- currently co-leads its domestic league with River Plate. It defeated Sao Paulo in the Liberators' Cup in August to win its berth in Thursday's game.
The Intercontinental Cup matches the top clubs from South America and Europe each year.
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