After losing her opener to Kiki Bertens of the Netherlands, the 29-year-old knew that failure to put away crowd favorite Osaka would likely end her chances of being the first German woman to win the season-ender featuring the top eight players since Steffi Graf in 1996.
Stephens gifted the second set to Osaka when she double-faulted on a second set point in the 10th game.
Stephens, who is without Kamau Murray this week due to a long-standing obligation, was pleased with the way she regrouped after having dropped the second set.
Wimbledon champion Kerber charged through the first set before claiming a 2-0 lead in the second, only for Bertens to storm back and clinch a 1-6, 6-3, 6-4 victory.
Earlier, Stephens and Osaka traded early breaks before the contest settled down as they had more success on serve until the American, playing patiently from the baseline, broke again in the seventh game when the Japanese made several unforced errors.
Much like against Stephens, a frustrated Osaka threw her racquet in disgust midway through the first set. "I thought I played a really good match - I played solid from start to finish", she said.
That hard-fought hold triggered a three-game mini run for the third seed, though the pair exchanged further breaks before Stephens - who often relied on her superb defensive capabilities to launch effective counter strikes against the aggressive Osaka - gifted the set to her opponent by sending down a double fault.
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Osaka's serve deserted her in the final set as she was broken three times.
However, she insisted that she has no regrets over her defeat, saying, "Usually after I lose, I have very specific things that I think would have changed the match".
"Honestly, beginning of the second was just like hopefully I can get a few more games".
"When she was hitting good shots, I still got my racket on a lot of the balls and I just made her play an extra ball".
Both players struggled to hold serve.
Bertens' dug out of a 0-40 hole to snap a string of seven straight breaks in the decider - capping the game with one of her five aces for the match - and later sealed the victory with a forehand victor - her 25th finisher in the match overall. I tried to regroup as best I could and played just like I was playing before.
The world number four also felt that her regular displays of emotion in Singapore were a result of not being able to follow through on her burning desire to win matches.
"Then I called him (Sluiter).in the first set".