I never understood how the rail pass saves you money...
It's usually cheaper to just take slower trains/ buses/ ferries. Also, a few of my friends managed to hitch hike around.
To save up on cash load up on tabehodais (eat all you can) and hit the karaoke joints for NOMIHODAI (drink all you can).
Hostels, as mentioned, are cheap and clean but if you're into trying something local, you can sleep at internet cafes too. And you should also look into capsule hotels < my personal favourite.
If you make it to Kyushu, send Nagasaki my love.