Japan's economy slips into recession on weak domestic demand

Capital expenditure, another key private-sector growth engine, fell 0.1%, compared with forecasts of a 0.3% gain. External demand, or exports minus imports, contributed 0.2 percentage point to GDP as exports rose 2.6% from the previous quarter, the data showed.

Japan's economy slipped into a recession as it unexpectedly shrank for two straight quarters on weak domestic demand, data showed on Thursday, raising uncertainty about the central bank's plans to exit its ultra-easy policy sometime this year. The surprisingly weak performance saw Japan lose its title as the world's third-largest economy, replaced by Germany.

Gross domestic product (GDP) fell an annualised 0.4% in the October-December period after a 3.3% slump in the previous quarter, government data showed. It compared with a median market forecast of a 1.4% increase. Two consecutive quarters of contraction are typically considered the definition of a recession.

The weak data may cast doubt on the Bank of Japan's forecast that rising wages will underpin consumption, and justify phasing out its massive monetary stimulus. On a quarterly basis, GDP slid 0.1% against median forecasts of a 0.3% gain.

Private consumption, which makes up more than half of economic activity, fell 0.2%, the data showed, against a 0.1% gain seen by economists. Capital expenditure, another key private-sector growth engine, fell 0.1%, compared with forecasts of a 0.3% gain.

External demand, or exports minus imports, contributed 0.2 percentage point to GDP as exports rose 2.6% from the previous quarter, the data showed.