Japan's economy slips into recession, raises BOJ policy doubts

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. The yen was little changed following the release of the data and last stood at 150.42 per dollar, pinned near a three-month low hit earlier in the week.

The Nikkei rose 1%, reversing some of its losses made from the previous session, possibly on expectations the BOJ may continue with its massive easing programme for longer than expected. 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.