I think your itinerary is fine, although I think jib made some good points.
Finding hotels that take 2 adults and 2 kids is not hard in Jpn actually. Certainly harder than US, but much easier than HKG.
I've discussed this topic so many times on FT so I won't repeat everything. But many hotels in Tokyo will let elementary school age kids sleep for free in existing bedding (few places like Vessel Campana will allow <18yo to sleep free), and it especially helps if the twin room type is such that they can stick the two twin beds together into "Hollywood twin" which creates one giant bed that's possible for 4 people to share, rather than 2 separate small beds each of which is difficult for 2 to share. Western brand hotels tend to have larger rooms and are more likely to be able to offer rollaway bed (almost always requires additional fee). Even in HKG, there are many hotels that will be flexible about accommodating the second child even if you're going to have to put 2+1 on the booking engine. We've stayed at a bunch of places that way including Conrad, Shangrila's, IC, Hyatt TST, etc.

I think 7am departure from HKG is undesirable, esp with kids. Whether you take a 7am flight and check into your Osaka hotel at 3pm, or take a much more reasonable 10am flight and check into Osaka hotel at 6pm, either way that will be pretty much a travel day.

What time do you arrive in HKG and where are you staying? If you take the Airport Express, you should ask for the family ticket (280HKD one-way for 4, barring any recent changes) and also don't bother with the free Airport Express hotel shuttle from the station but rather just take a cab once you're in the city. Alternatively, a wonderfully hassle-way into the city is to book a private van through Klooks which costs only like ~600HKD if memory serves. Sorry I am digressing into HKG-centuric advice on Jpn forum.