From here:

Quote Originally Posted by shazam
for some reason Japanese pronouce there 'l's as 'r's hehe
Actually it's neither - the Japanese /r/ is somewhere midway between an English /l/ and /r/. In English, /r/ is an alveolar approximant and /l/ is a alveolar lateral approximant. The Japanese /r/ is a an alveolar tap.

The fact is that the Japanese /r/ sound simply doesn't exist in English or any other European language - although the /r/ in Spanish is more similar as an alveolar flap; and considering that Spanish and Portuguese missionaries would have been the first Europeans to Romanise the Japanese language it's not too surprising that they transcribed it as "r".

P.S.: remind me next time you come to a Sydney meet - I'll show you how to pronounce it correctly if you want.