Iwakuma began the 2004 season 12–0 and establishing a franchise record for most consecutive wins to start the season. He received the most fan votes among Pacific League starting pitchers for the NPB All-Star Game that year, starting Game 1 at Nagoya Dome on July 10, and pitched in the 2004 Athens Olympics as a member of the Japanese national team in August. He finished with a 15–2 record for the year, leading the league in both wins and winning percentage (.882) for the first time in his career. He also pitched in Game 5 of the MLB All-Star Series held in November, holding the MLB All-Stars to one run over seven innings to earn the win.
Following the 2004 season, Iwakuma's Buffaloes and the Orix BlueWave, another Pacific League team based in the Kansai region, opted to merge to alleviate some of their financial difficulties, later leading to the addition of a new team named the Tohoku Rakuten Golden Eagles that would fill the void created by the merger. Iwakuma was initially named a member of the newly formed Orix Buffaloes in a dispersal draft held that November, but refused to comply and join the Buffaloes and became involved in a contractual dispute. Although the Buffaloes attempted to persuade him to play for their team, they eventually agreed to trade him to the Eagles in exchange for cash.
Iwakuma made his first appearance on the international stage when he was named to the Japanese national team that would play in the 2004 Athens Olympics. Coming off a torrid 12–0 start to the regular season, Iwakuma took the mound in the second game of the preliminary round against the Netherlands on August 16. However, he allowed seven baserunners (three hits, three walks, and a hit-batter) and gave up three runs (two earned) against a team that was viewed as the heavy underdog, leading head coach (and acting manager) Kiyoshi Nakahata to pull him from the game after just 1⁄3 innings. Though Japan went on to win the game 8–3 behind a strong relief effort (five shutout innings) by future MLB pitcher Hiroki Kuroda, Iwakuma lost the trust of the coaching staff and did not pitch in the tournament again.