This beverage is called sake in English, but in Japanese, sake (酒) or o-sake (お酒) refers to alcoholic drinks in general. The Japanese term for this specific beverage is Nihonshu (日本酒), meaning “Japanese sake”.
The origins of sake are unclear; however, the earliest written reference to use of alcohol in Japan is recorded in the Book of Wei, of the Records of Three Kingdoms. This 3rd century Chinese text speaks of the Japanese drinking and dancing. Sake is also mentioned several times in the Kojiki, Japan’s first written history, compiled in 712. People used sake for spiritual functions because people who had it got a fever.
The first alcoholic drink in Japan may have been kuchikami no sake (“mouth-chewed sake”), which is made by chewing nuts or grains and spitting them into a pot. The enzymes from the saliva allow the starches to saccharify (convert to sugar), and then ferment. This method was also used by Native Americans (see cauim, chicha and pulque), and inscriptions from the 14th century BC mention Chinese millet wine (小米酒,xiǎo mǐ jǐu) being made the same way.Though there are various opinions in the start of sake, ancient sake was a basically sticky state of the paste as “neri sake” that remained in Izumo and Hakata now.
Regardless, by the Asuka period, true sake – made from rice, water, and kōji mold (麹, Aspergillus oryzae) – was the dominant alcohol. In the Heian period, sake began to be used for religious ceremony and people seldom drank it. Sake production was a government monopoly for a long time, but in the 10th century, temples and shrines began to brew sake, and they became the main centers of production for the next 500 years. The Tamon-in Diary, written by abbots of Tamon-in temple from 1478 to 1618, records many details of brewing in the temple. The diary shows that pasteurization and the process of adding ingredients to the main fermentation mash in three stages were established practices by this time. In the 16th century, technique of distillation was introduced into the Kyushu district from Ryukyu, and started brewing shochu called “Imo – sake,” sold at the central market in Kyoto. And, powerful daimyos imported various liquors and wine from Europe, China, and Korea.
See the brewing process and read more history at Wikepedia: http://en.wikipedia.org/wiki/Sake