Because Portugal did not have the capacity nor the inclination to fight Japan.
The Portuguese East Timor garrison consisted of an understrength colonial battalion of one colonial company, a very small militia force and a mounted border police unit, a grand total of 282 men with 4 light and 6 heavy machine guns and no artillery at all.
East Timor had already been invaded, under local Portuguese protest, by Australian forces who recognised that the island could not be held by only defending the western (Dutch) part on the 17th of December 1941.
When Japan invaded on the 19th of February 1942, there was a convoy heading for East Timor carrying two companies of Mozambique colonial troops and artillery, but this force was not allowed passage by the Japanese, and the Portuguese troops which had intended to replace the Austrialian and Dutch East Indees troops - a force of about 800 men with a battery of artillery had to turn around and head back for Portuguese Mozambique.