Great question.
Let's start with your more straightforward and simpler sentence.
日本はちょと高いですが、...
This says
As for Japan, it's a bit expensive....
where it means Japan.
But that's not what the original sentence is saying. The original sentence is
日本のはちょっと高いですが、
which can be translated as
The Japanese one is a bit expensive,...
There is context that is missing here. There is something that's being talked about. Perhaps it's a nice sweater, セーター, you like and you have a choice between a variety of sweaters one of which is Japanese. So, the sentence could have been
日本のセーターはちょっと高いですが
But if it's already understood that you're talking about sweaters, you can omit セーター and just say 日本の, the Japanese one.