Factory output in the world's third-largest economy has slowed and Japan recorded its worst September trade figures in more than 30 years as weakness in Europe, a strong yen and a territorial dispute with China hit exports.
The Cabinet Office said the economy of Japan, hammered by last year's quake-tsunami disaster, shrank 0.9 percent in the September quarter from the previous three months, a result largely in line with market expectations.
On an annualised basis -- which shows how the quarterly data would look if it were maintained for a full year -- the economy contracted 3.5 percent, it said, as exports slipped and demand among Japanese consumers also slowed.
While the annualised figure beat market expectations, it was the sharpest rate of contraction since the twin disasters in March last year paralysed growth.
The government has taken a series of steps to spur Japan's lumbering recovery, including offering incentives for fuel-efficient vehicle purchases and measures to rebuild the northern region hit by the tsunami.
However, those auto subsidies have now expired. Also, demand for Japanese cars has plunged in China, the world's biggest vehicle market, amid a consumer boycott that followed Tokyo's nationalisation in mid-September of an East China Sea island chain claimed by both Japan and its huge neighbour.
"Deterioration in external demand will likely continue through the October-December period as the negative impact from China is expected to remain," RBS Securities chief Japan economist Junko Nishioka told Dow Jones Newswires.
Nishioka added that the economy was unlikely to show growth again "until the April-June period at the earliest, since the negative effects from China are expected to remain until around mid-December and as the global economy is likely to hit a bottom in October-December."
Weakness in Europe, a key export markets for Japanese products, has also weighed with simmering fiscal turmoil on the continent.
Last month, The Bank of Japan unveiled $138 billion in fresh monetary easing after central banks in the United States and debt-hit Europe also announced policy easing measures to stoke growth.
The BoJ said it would expand an asset-purchase programme -- its main policy tool -- by 11 trillion yen ($138 billion) to 91 trillion yen, while keeping rates unchanged at between zero and 0.1 percent.
The central bank, which also said it would provide new loans to banks, had been under pressure from politicians calling for urgent action on Japan's slowing economy.
The asset-purchase programme is aimed at injecting liquidity into markets through purchases of government and corporate bonds, and commercial paper, with the latest move aimed squarely at countering a slowing global economy
The BoJ's stimulus came with a warning that Japan's economy would expand just 1.5 percent in the year to March, well off an earlier 2.2 percent estimate.
The strong yen is a particularly acute problem for major export brands such as Japan's automakers, with Honda and Nissan recently warning their full-year profits would shrink on the surging currency and China territorial spat.
Japanese factories and businesses across China closed or scaled back operations in September over fears they or their workers could be targeted by mobs protesting against Tokyo's nationalisation of the island chain, called the Senkaku islands in Japan and the Diaoyu islands in China.
Japan's economy contracted between July and September, official data showed Monday, reversing two previous quarters of growth and underscoring fears that its post-disaster recovery has stalled.