Only four other players finished under par at stunning but demanding Royal County Down. Two other Scots, John Chillas and Peter Kerr, posted 69s for joint possession of third place at 2-under, while England's Tony Allen shot 1-under 70 to share fifth with five-time British Open champion Tom Watson.
'Most of my shots were a bit off,' said Watson, who is making his first appearance in a Senior British Open. 'It's annoying because I felt the golf course was there for the taking.
'When we went out, the wind wasn't blowing all that hard. It was very benign by Royal County Down standards so I feel as if I have let an opportunity slip.'
Watson kicked his round off in spectacular fashion with an eagle at the 522-yard, par-5 first hole, only to give a stroke back with a bogey at the second. Although he made three more bogeys the rest of the way, Watson was able to immediately answer each dropped shot with a birdie.
The 52-year-old Watson is coming off a disappointing showing in last week's British Open, where he missed the cut by 13 strokes with rounds of 77-78 at Muirfield, the site of his 1980 Open triumph.
He came out on the short end of a better stick a month ago after an exciting playoff loss to Don Pooley at the U.S. Senior Open at Caves Valley near Baltimore.
Sugai, whose resume includes four wins on the Japan PGA Tour and three more on the Japan Senior Tour, birdied the first two holes Thursday and added another at the ninth to make his way out in 32. A bogey six at the 479-yard, par-5 12th knocked him back to 2-under, but Sugai forged ahead with birdies at the 203-yard 14th and 375-yard 17th.
'The key was good putting and good approach shots,' said Sugai, 52. 'I like this course. Two years ago, on my first visit, I finished 18th and I have felt very comfortable ever since.'
South Africa's John Bland, the runner-up in the Senior British Open in 1997, '99 and 2000, was part of an eight-way tie for seventh at even-par 71. Japan's Seiji Ebihara, who successfully defended his Irish Seniors Open title in May and captured the Wales Seniors Open earlier this month, was knotted with nine players at 1-over-par.
Ebihara's 72 included a three-bogey, one double-bogey 40 on the front nine and a 32 on the back made up of an eagle, three birdies and one bogey.
Christy O'Connor, Jr., seeking his third victory in the Senior British Open, double-bogeyed the 18th for a 2-over 73.
'It was a horrible way to finish,' said the 53-year-old Irishman, who won the title in 1999 and 2000 but had to skip last year's championship after breaking his ankle. 'I have got to admit that I am mad at myself. I played superbly but my putting was filthy. I'm going to have to go home and give myself a bit of a talking to.'
Defending champion Ian Stanley of Australia made a brief appearance on the leaderboard with a pair of birdies to open his round but struggled in the windy afternoon conditions. He carded two double-bogeys later on the front side and finished with three bogeys over the last six holes to complete a 4-over 75.
'It's a bit disappointing but at least it is over and done with,' Stanley said. 'Today, we probably got the worst of the weather but tomorrow it might be different. Who knows, you are never quite sure on a links.'
England's Tony Jacklin, winner of the British Open in 1969 and the U.S. Open in 1970, was one of 32 players to post rounds in the 80s.
Full-field scores from the Senior British Open